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The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit

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  • Laussel, Didier
  • Long, Ngo Van
  • Resende, Joana

Abstract

We show that a monopolist's profit is higher if he refrains from collecting coarse information on his customers, sticking to constant uniform pricing rather than recognizing customers' segments through their purchase history. In the Markov-perfect equilibrium with coarse information collection, after each commitment period, a new introductory price is offered to attract new customers, creating a new market segment for price discrimination. Eventually, the whole market is covered. Shortening the commitment period results in lower profits. These results sharply differ from the ones obtained when the firm can uncover the exact willingness-to-pay of each previous customer.

Suggested Citation

  • Laussel, Didier & Long, Ngo Van & Resende, Joana, 2019. "The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit," Discussion paper series HIAS-E-93, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-93
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    References listed on IDEAS

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    Cited by:

    1. Didier Laussel & Ngo Van Long & Joana Resende, 2023. "Profit Effects of Consumers’ Identity Management: A Dynamic Model," Management Science, INFORMS, vol. 69(6), pages 3602-3615, June.

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    More about this item

    Keywords

    curse of knowledge; customers information; intertemporal price discrimination; Coase conjecture; price personalization;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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