Price Discrimination with Private and Imperfect Information
AbstractThis paper investigates the competitive and welfare effects of information accuracy improvements in markets where firms can price discriminate after observing a private and noisy signal about a consumer's brand preference. I show that firms charge more to customers they believe have a brand preference for them, and that this price has an inverted-U shaped relationship with the signal's accuracy. In contrast, the price charged after a disloyal signal has been observed falls as the signal's accuracy rises. While industry profit and overall welfare fall monotonically as price discrimination is based on increasingly more accurate information, the reverse happens to consumer surplus. The model is also extended to a public information setting. For any level of the signal's accuracy, moving from public to private information boosts industry profit and welfare at the expense of consumer surplus.
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Bibliographic InfoPaper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 3/2010.
Date of creation: 2010
Date of revision:
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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Other versions of this item:
- Rosa-Branca Esteves, 2012. "Price Discrimination with Private and Imperfect Information," NIPE Working Papers 12/2012, NIPE - Universidade do Minho.
- D43 - Microeconomics - - Market Structure and Pricing - - - 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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