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Price Discrimination with Varying Qualities of Information

Author

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  • Liu Qihong

    (Department of Economics, University of Oklahoma, 308 Cate Center Drive, Norman, OK 73019, USA)

  • Shuai Jie

    (Wenlan School of Business, Zhongnan University of Economics and Law, 182 Nanhu Ave., East Lake High-tech Development Zone, Wuhan 430073, P.R. China)

Abstract

Advances in information technology have greatly enhanced firms’ ability to collect, market and utilize consumer information. As the market for consumer information expands rapidly, businesses are armed with unprecedented means to target any group of consumers they desire. This has important and far-reaching impacts on consumer welfare. In this paper we analyze the welfare impacts of price discrimination facilitated by increasing qualities of consumer information. We employ a two-dimensional spatial differentiation model where consumer information is available on one dimension, and better information leads to more refined price discrimination. We find that as information quality improves, equilibrium prices and profits monotonically increase while consumer surplus and social surplus monotonically decrease. Price discrimination has a reduced demand elasticity effect which becomes stronger when consumer information becomes more precise. Our results suggest that regulators need to pay more attention to the potential damage to consumer welfare by the increasing collection and utilization of consumer information. We also endogenize firms’ information acquisition decisions.

Suggested Citation

  • Liu Qihong & Shuai Jie, 2016. "Price Discrimination with Varying Qualities of Information," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1093-1121, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:1093-1121:n:11
    DOI: 10.1515/bejeap-2015-0091
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    References listed on IDEAS

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    Cited by:

    1. Sei Beom Won, 2017. "Two-dimensional price discrimination with uncertainty about willingness-to-pay," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 58(3), pages 513-541, May.
    2. Irina Baye & Geza Sapi, 2019. "Should Mobile Marketers Collect Data Other Than Geo‐Location?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 647-675, April.
    3. Tong Zhang & Yixue Huo & Xin Zhang & Jie Shuai, 2019. "Endogenous third-degree price discrimination in Hotelling model with elastic demand," Journal of Economics, Springer, vol. 127(2), pages 125-145, July.
    4. Chiara Conti & Pierfrancesco Reverberi, 2019. "Price discrimination and product quality under opt-in privacy regulation," DIAG Technical Reports 2019-07, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    5. Conti, Chiara & Reverberi, Pierfrancesco, 2021. "Price discrimination and product quality under opt-in privacy regulation," Information Economics and Policy, Elsevier, vol. 55(C).
    6. Baye, Irina & Reiz, Tim & Sapi, Geza, 2018. "Customer recognition and mobile geo-targeting," DICE Discussion Papers 285, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Okuyama, Suzuka, 2021. "Behavior-based Price Discrimination in the Domestic and International Mixed duopoly," MPRA Paper 110206, University Library of Munich, Germany.

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