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Quality of Information and Oligopolistic Price Discrimination

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  • Qihong Liu
  • Konstantinos Serfes

Abstract

Recent developments in information technology (IT) have resulted in the collection of a vast amount of customer-specific data. As IT advances, the quality of such information improves. We analyze a unifying spatial price discrimination model that encompasses the two most studied paradigms of two-group and perfect discrimination as special cases. Firms use the available information to classify the consumers into different groups. The number of identifiable consumer segments increases with the information quality. Among our findings (1) when the information quality is low, unilateral commitments not to price discriminate arise in equilibrium; (2) after a unique threshold of information precision such a commitment is a dominated strategy, and the game becomes a prisoners' dilemma; and (3) equilibrium profits exhibit a U-shaped relationship with the information quality. Copyright Blackwell Publishing 2004.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jemstr:v:13:y:2004:i:4:p:671-702
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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