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Information Acquisition and Price Discrimination

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  • Fatemi, Farshad

Abstract

We consider a Hotelling model of price competition where firms may acquire costly information regarding the preferences (i.e. “location”) of customers. By purchasing additional information, a firm has a finer partition regarding customer preferences, and its pricing decisions must be measurable with respect to this partition. If information acquisition decisions are common knowledge at the point where firms compete via prices, we show that a pure strategy subgame perfect equilibrium exists, and that there is “excess information acquisition” from the point of view of the firms. If information acquisition decisions are private information, a pure strategy equilibrium fails to exist. We compute a mixed strategy equilibrium for a range of parameter values.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20399.

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Date of creation: 30 Jan 2010
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Handle: RePEc:pra:mprapa:20399

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Keywords: Information Acquisition; Price Discrimination;

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  1. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  2. Qihong Liu & Konstantinos Serfes, 2004. "Quality of Information and Oligopolistic Price Discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 671-702, December.
  3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  4. V. Bhaskar & Ted To, 2004. "Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 762-776, Winter.
  5. Qihong Liu & Konstantinos Serfes, 2005. "Imperfect price discrimination, market structure, and efficiency," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1191-1203, November.
  6. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  7. Hamilton, Jonathan & Slutsky, Steven, 2004. "Nonlinear price discrimination with a finite number of consumers and constrained recontracting," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 737-757, June.
  8. 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.
  9. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
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