IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v82y2022ics0167718722000224.html
   My bibliography  Save this article

Behavior-based personalized pricing: When firms can share customer information

Author

Listed:
  • Choe, Chongwoo
  • Matsushima, Noriaki
  • Tremblay, Mark J.

Abstract

We study a two-period model of behavior-based price discrimination where firms can agree to share customer information before the first-period competition begins, and the information can be used for personalized pricing in the second-period competition. We show that information sharing is individually rational for firms as it softens upfront competition when information is gathered, consumers are worse off as a result, but total surplus can increase thanks to the improved quality of matching between firms and consumers. These findings are robust to firm asymmetries and varying discount factors for consumers and firms.

Suggested Citation

  • Choe, Chongwoo & Matsushima, Noriaki & Tremblay, Mark J., 2022. "Behavior-based personalized pricing: When firms can share customer information," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:indorg:v:82:y:2022:i:c:s0167718722000224
    DOI: 10.1016/j.ijindorg.2022.102846
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718722000224
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2022.102846?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amit Pazgal & David Soberman, 2008. "Behavior-Based Discrimination: Is It a Winning Play, and If So, When?," Marketing Science, INFORMS, vol. 27(6), pages 977-994, 11-12.
    2. He, Zhiguo & Huang, Jing & Zhou, Jidong, 2023. "Open banking: Credit market competition when borrowers own the data," Journal of Financial Economics, Elsevier, vol. 147(2), pages 449-474.
    3. Zhijun Chen & Chongwoo Choe & Jiajia Cong & Noriaki Matsushima, 2022. "Data‐driven mergers and personalization," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 3-31, March.
    4. Armantier, Olivier & Richard, Oliver, 2003. "Exchanges of Cost Information in the Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 461-477, Autumn.
    5. Zhijun Chen & pch346 & Chongwoo Choe & Jiajia Cong & Noriaki Matsushima, 2020. "Data-Driven Mergers and Personalization," Monash Economics Working Papers 16-20, Monash University, Department of Economics.
    6. Yu Awaya & Vijay Krishna, 2020. "Information exchange in cartels," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 421-446, June.
    7. Didier Laussel & Ngo V. Long & Joana Resende, 2020. "The curse of knowledge: having access to customer information can reduce monopoly profits," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 650-675, September.
    8. Greg Shaffer & Z. John Zhang, 2002. "Competitive One-to-One Promotions," Management Science, INFORMS, vol. 48(9), pages 1143-1160, September.
    9. Qihong Liu & Konstantinos Serfes, 2004. "Quality of Information and Oligopolistic Price Discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 671-702, December.
    10. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    11. David Bounie & Antoine Dubus & Patrick Waelbroeck, 2021. "Selling strategic information in digital competitive markets," RAND Journal of Economics, RAND Corporation, vol. 52(2), pages 283-313, June.
    12. Paul Belleflamme & Wing Man Wynne Lam & Wouter Vergote, 2019. "Competitive Imperfect Price Discrimination and Market Power," CESifo Working Paper Series 7964, CESifo.
    13. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    14. Byung‐Cheol Kim & Jay Pil Choi, 2010. "Customer Information Sharing: Strategic Incentives and New Implications," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 403-433, June.
    15. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    16. Garella, Paolo G. & Laussel, Didier & Resende, Joana, 2021. "Behavior based price personalization under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    17. Chongwoo Choe & Stephen King & Noriaki Matsushima, 2018. "Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition," Management Science, INFORMS, vol. 64(12), pages 5669-5687, December.
    18. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    19. Zhijun Chen & Chongwoo Choe & Noriaki Matsushima, 2020. "Competitive Personalized Pricing," Management Science, INFORMS, vol. 66(9), pages 4003-4023, September.
    20. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
    21. Mark Armstrong & John Vickers, 2010. "Competitive Non-linear Pricing and Bundling," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 30-60.
    22. Ki-Eun Rhee & Raphael Thomadsen, 2017. "Behavior-Based Pricing in Vertically Differentiated Industries," Management Science, INFORMS, vol. 63(8), pages 2729-2740, August.
    23. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    24. Chongwoo Choe & Noriaki Matsushima & Mark J. Tremblay, 2020. "Behavior-Based Personalized Pricing: When Firms Can Share Customer Information," ISER Discussion Paper 1083, Institute of Social and Economic Research, Osaka University.
    25. Chongwoo Choe & Jiajia Cong & Chengsi Wang, 2024. "Softening Competition Through Unilateral Sharing of Customer Data," Management Science, INFORMS, vol. 70(1), pages 526-543, January.
    26. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    27. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    28. Lode Li, 2002. "Information Sharing in a Supply Chain with Horizontal Competition," Management Science, INFORMS, vol. 48(9), pages 1196-1212, September.
    29. Clavorà Braulin, Francesco & Valletti, Tommaso, 2016. "Selling customer information to competing firms," Economics Letters, Elsevier, vol. 149(C), pages 10-14.
    30. Paul Belleflamme & Wing Man Wynne Lam, & Wouter Vergote, 2020. "Competitive Imperfect Price Discrimination and Market Power," Marketing Science, INFORMS, vol. 39(5), pages 996-1015, September.
    31. Simon Cowan & Xiangkang Yin, 2008. "Competition Can Harm Consumers," Australian Economic Papers, Wiley Blackwell, vol. 47(3), pages 264-271, September.
    32. Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
    33. Chen, Yuxin & Zhang, Z. John, 2009. "Dynamic targeted pricing with strategic consumers," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 43-50, January.
    34. Maxim Ivanov, 2013. "Information revelation in competitive markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 337-365, January.
    35. Rosa Branca Esteves, 2009. "Customer Poaching And Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    36. Juanjuan Zhang, 2011. "The Perils of Behavior-Based Personalization," Marketing Science, INFORMS, vol. 30(1), pages 170-186, 01-02.
    37. Liu, Qihong & Serfes, Konstantinos, 2006. "Customer information sharing among rival firms," European Economic Review, Elsevier, vol. 50(6), pages 1571-1600, August.
    38. Jiwoong Shin & K. Sudhir, 2010. "A Customer Management Dilemma: When Is It Profitable to Reward One's Own Customers?," Marketing Science, INFORMS, vol. 29(4), pages 671-689, 07-08.
    39. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    40. Jentzsch, Nicola & Sapi, Geza & Suleymanova, Irina, 2013. "Targeted pricing and customer data sharing among rivals," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 131-144.
    41. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    42. Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Individual Marketing with Imperfect Targetability," Marketing Science, INFORMS, vol. 20(1), pages 23-41, November.
    43. John Asker & Chaim Fershtman & Jihye Jeon & Ariel Pakes, 2020. "A computational framework for analyzing dynamic auctions: The market impact of information sharing," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 805-839, September.
    44. Carl Shapiro, 1986. "Exchange of Cost Information in Oligopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 433-446.
    45. Yongmin Chen & Michael H. Riordan, 2008. "Price‐increasing competition," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1042-1058, December.
    46. Stefano Colombo, 2018. "Behavior‐ and characteristic‐based price discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 237-250, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ratul Das Chaudhury & Chongwoo Choe, 2023. "Digital Privacy: GDPR and Its Lessons for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(2), pages 204-220, June.
    2. Masuyama, Ryo, 2023. "Endogenous privacy and heterogeneous price sensitivity," MPRA Paper 117316, University Library of Munich, Germany.
    3. Qiuyu Lu & Noriaki Matsushima, 2023. "Personalized pricing when consumers can purchase multiple items," ISER Discussion Paper 1192, Institute of Social and Economic Research, Osaka University.
    4. Clavorà Braulin, Francesco, 2023. "The effects of personal information on competition: Consumer privacy and partial price discrimination," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    5. Qiuyu Lu & Noriaki Matsushima, 2024. "Personalized Pricing When Consumers Can Purchase Multiple Items," Journal of Industrial Economics, Wiley Blackwell, vol. 72(4), pages 1507-1524, December.
    6. Tulabandhula, Theja & Ouksel, Aris M. & Nguyen, Son The, 2023. "Impact of customer loyalty and differing firm costs on price discrimination in an infinite horizon setting," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 344-377.
    7. Shuaicheng Liu, 2024. "Privacy regulation in asymmetric environments," Journal of Regulatory Economics, Springer, vol. 66(2), pages 157-173, December.
    8. Navarra, Federico & Pino, Flavio & Sandrini, Luca, 2024. "Mandated data-sharing in hybrid marketplaces," ZEW Discussion Papers 24-051, ZEW - Leibniz Centre for European Economic Research.
    9. Noriaki Matsushima & Mark J. Tremblay, 2024. "Network compatibility and incumbent pricing regimes," ISER Discussion Paper 1265, Institute of Social and Economic Research, Osaka University.
    10. Michel Tolksdorf, 2023. "On Point Predictions and Reference Dependence in Behavior-Based Pricing Experiments," Journal of Economics and Behavioral Studies, AMH International, vol. 15(1), pages 1-14.
    11. Shuaicheng Liu, 2023. "Location choice with asymmetric data in the Hotelling model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 855-878, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chongwoo Choe & Noriaki Matsushima & Mark J. Tremblay, 2020. "Behavior-Based Personalized Pricing: When Firms Can Share Customer Information," ISER Discussion Paper 1083, Institute of Social and Economic Research, Osaka University.
    2. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    3. Chongwoo Choe & Jiajia Cong & Chengsi Wang, 2024. "Softening Competition Through Unilateral Sharing of Customer Data," Management Science, INFORMS, vol. 70(1), pages 526-543, January.
    4. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    5. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    6. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    7. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    8. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2022. "Data brokers co-opetition [The impact of big data on firm performance: an empirical investigation]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 820-839.
    9. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    10. Umezawa, Masashi, 2022. "Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs," Information Economics and Policy, Elsevier, vol. 61(C).
    11. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Exclusive Data, Price Manipulation and Market Leadership," CESifo Working Paper Series 7853, CESifo.
    12. Shrivastav, Sumit, 2023. "Information, mis-information, and history-based price discrimination in a duopoly," Information Economics and Policy, Elsevier, vol. 65(C).
    13. Rosa‐Branca Esteves & Qihong Liu & Jie Shuai, 2022. "Behavior‐based price discrimination with nonuniform distribution of consumer preferences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 324-355, April.
    14. Colombo, Stefano & Graziano, Clara & Pignataro, Aldo, 2024. "Imperfect history-based price discrimination with asymmetric market shares," Information Economics and Policy, Elsevier, vol. 67(C).
    15. Chongwoo Choe & Stephen King & Noriaki Matsushima, 2018. "Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition," Management Science, INFORMS, vol. 64(12), pages 5669-5687, December.
    16. Ronen Gradwohl & Moshe Tennenholtz, 2022. "Pareto-Improving Data-Sharing," Papers 2205.11295, arXiv.org.
    17. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," Working Papers halshs-00622291, HAL.
    18. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
    19. Bernard Caillaud & Romain De Nijs, 2014. "Strategic Loyalty Reward in Dynamic Price Discrimination," Marketing Science, INFORMS, vol. 33(5), pages 725-742, September.
    20. Dubus, Antoine, 2024. "Behavior-based algorithmic pricing," Information Economics and Policy, Elsevier, vol. 66(C).

    More about this item

    Keywords

    Information sharing; Behavior-based price discrimination; Personalized pricing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:82:y:2022:i:c:s0167718722000224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.