Location-price competition with freight absorption pricing in a data sharing economy

Advancements in e-commerce and the development of artificial intelligence (AI) with big data have made price personalisation easier for retailers. Simultaneously, sharing and using customer data obtained by selling products provides firms with new profitable opportunities. Many studies have examined location-price competition with freight absorption pricing as the model that deals with price personalisation. However, they have not considered the additional profits earned by sharing data. We extend the model of Lederer and Hurter (in Econometrica 54:623–640, 1986) to add the component of data sharing and focus on how data sharing influences firms’ strategies in location-price competition with freight absorption pricing. We show that the additional revenues from data sharing lower product prices. Additionally, we demonstrate that firms capture consumers from other firms by shifting their locations towards the centre of the line segment, where unit delivery costs are low compared with the effect of data sharing. This result implies that additional revenues from data sharing strengthen firms’ competition and do not always increase firms’ profits.