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This paper considers variants of a dynamic duopoly model where one firm has a stronger market position than its competitor. Consumers' past purchases may reveal their different valuations for the two firms' products. Price discrimination based on purchase histories tends to benefit consumers if it does not cause the weaker firm to exit; otherwise it can harm consumers. The effect of price discrimination also depends on firms' cost differences, market competitiveness, and consumers' time horizon. The stronger firm may price below cost in the presence of consumer switching costs, with the purpose and effect of eliminating competition. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 56 (2008)
Issue (Month): 4 (December)
Pages: 729-751

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Handle: RePEc:bla:jindec:v:56:y:2008:i:4:p:729-751
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