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A Survey on the Economics of Behaviour-Based Price Discrimination

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Abstract

Economists have long been interested in understanding the profit, consumer surplus and welfare effects of an ancient marketing strategy: Price Discrimination. While it is not new that firms try frequently to segment customers in order to price discriminate, what has dramatically changed, with recent advances in information technologies, is the quality of consumer-specific data now available in many markets and how this information has been used by firms for price discrimination purposes. Specifically, thanks to information technology it is nowadays increasingly feasible for sellers to segment customers on the basis of their purchasing histories and to price discriminate accordingly. This form of price discrimination has been named in the literature as Behaviour-Based Price Discrimination (BBPD). For a long time economists have been concerned in understanding the economic effects of price discrimination in monopolistic markets. However, because imperfect competition is undoubtedly the most common economic setting, recent research on the field has been concerned with the following issues. Firstly, how are profit, consumer surplus and welfare affected when firms practice some form of price discrimination in imperfectly competitive markets? Secondly, in which circumstances may competitive firms have an incentive to price discriminate or rather to avoid it? As we will see, conclusions regarding the profit and welfare effects of price discrimination are strongly dependent upon the form of price discrimination, which in turn depends upon the form of consumer heterogeneity and the different instruments available for price discrimination. Basically, the aim of this survey is to clarify the two aforementioned issues in imperfectly competitive markets.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 5/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:5/2009

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References

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  1. Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
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  15. Rosa Branca Esteves, 2007. "Customer Poaching and Advertising," NIPE Working Papers 12/2007, NIPE - Universidade do Minho.
  16. Rosa-Branca Esteves, 2012. "Price Discrimination with Private and Imperfect Information," NIPE Working Papers 12/2012, NIPE - Universidade do Minho.
  17. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
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  19. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
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Citations

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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.
  2. Rosa-Branca Esteves & Sofia Cerqueira, 2014. "Behaviour-Based Price Discrimination under Advertising and Imperfectly Informed Consumers," NIPE Working Papers 08/2014, NIPE - Universidade do Minho.
  3. Rosa-Branca Esteves, 2014. "Behaviour-Based Price Discrimination with Retention Offers," NIPE Working Papers 09/2014, NIPE - Universidade do Minho.
  4. Oz Shy & Rune Stenbacka, 2012. "Investment in customer recognition and information exchange," Working Papers 12-4, Federal Reserve Bank of Boston.
  5. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
  6. Rosa Branca Esteves & Hélder Vasconcelos, 2009. "Price Discrimination under Customer Recognition and Mergers," NIPE Working Papers 23/2009, NIPE - Universidade do Minho.
  7. repec:hal:wpaper:halshs-00622291 is not listed on IDEAS
  8. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
  9. Rosa Branca Esteves, 2007. "Pricing with Customer Recognition," NIPE Working Papers 27/2007, NIPE - Universidade do Minho.
  10. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.
  11. Oz Shy & Rune Stenbacka, 2011. "Customer recognition and competition," Working Papers 11-7, Federal Reserve Bank of Boston.
  12. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.

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