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Price discrimination with imperfect consumer recognition

Author

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  • Sumit Shrivastav

    (Indira Gandhi Institute of Development Research)

Abstract

In this paper, we analyze the competitive and welfare effects of imperfect consumer recognition, in a duopoly model with switching costs. We demonstrate that the impact of consumer recognition on firms' pricing strategies, industry profits, and welfare crucially depends on the accuracy of consumer recognition. When the extent of correct recognition is greater than that of incorrect recognition equilibrium profits decrease with correct recognition and increase with incorrect recognition Consumer surplus increases with correct recognition and falls with incorrect recognition. Welfare decreases with correct recognition, while impact of incorrect recognition on welfare is non-monotonic On the other hand, when the extent of correct recognition is less than that of incorrect recognition, the reverse happens with equilibrium profits. The effect of correct recognition on consumer surplus is ambiguous, and it increases with incorrect recognition. Welfare increases with correct recognition and may increase or decrease with incorrect recognition.

Suggested Citation

  • Sumit Shrivastav, 2021. "Price discrimination with imperfect consumer recognition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2021-017
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2021-017.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    BBPD; Consumer recognition; Price discrimination; Imperfect information;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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