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Investment in customer recognition and information exchange

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  • Oz Shy
  • Rune Stenbacka
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Abstract

We investigate how costly acquisition and exchange of customer-specific information affects industry profit and consumer welfare. Consumers differ in their preferences for competing brands and in their switching costs between brands. Brand-producing firms use their acquired knowledge of customer-specific preferences to differentiate prices. We show that consumers are worse off when firms acquire information about their preferences and that information sharing between firms further magnifies their losses. No information sharing supports a subgame perfect equilibrium that is also efficient. Finally, equilibrium investments in customer information may be excessive if firms bear low costs of acquiring customer-specific information.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 12-4.

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Date of creation: 2012
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Handle: RePEc:fip:fedbwp:12-4

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Keywords: Consumers' preferences;

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References

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  27. Shapiro, Carl, 1986. "Exchange of Cost Information in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 433-46, July.
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Cited by:
  1. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.

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