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Information provision and behaviour-based price discrimination

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  • De Nijs, Romain

Abstract

This article examines a model wherein firms first advertise their existence to consumers and, in the two following periods, compete with uniform pricing and then with behaviour-based price discrimination. I show that allowing firms to price discriminate can restore symmetry in equilibrium advertising decisions. I also establish that price discrimination increases (resp. decreases) profits and total welfare but hurts (resp. benefits) consumers when the advertising cost is high (resp. low).

Suggested Citation

  • De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
    • Handle: RePEc:eee:iepoli:v:25:y:2013:i:1:p:32-40
    DOI: 10.1016/j.infoecopol.2013.01.003
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    References listed on IDEAS

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    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    2. Ireland, Norman J, 1993. "The Provision of Information in a Bertrand Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 61-76, March.
    3. Eaton B. Curtis & MacDonald Ian A. & Meriluoto Laura, 2010. "Existence Advertising, Price Competition and Asymmetric Market Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-29, August.
    4. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
    5. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
    6. Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
    7. Chen, Yuxin & Zhang, Z. John, 2009. "Dynamic targeted pricing with strategic consumers," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 43-50, January.
    8. Rosa Branca Esteves, 2009. "Customer Poaching And Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    9. Yongmin Chen, 2008. "Dynamic Price Discrimination With Asymmetric Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 729-751, December.
    10. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
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    Citations

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    Cited by:

    1. Colombo, Stefano, 2015. "Should a firm engage in behaviour-based price discrimination when facing a price discriminating rival? A game-theory analysis," Information Economics and Policy, Elsevier, vol. 30(C), pages 6-18.
    2. Zhang, Jianqiang & Liang, Qi & Huang, Jian, 2016. "Forward advertising: A competitive analysis of new product preannouncement," Information Economics and Policy, Elsevier, vol. 37(C), pages 3-12.
    3. Vickers, John, 2021. "Competition for imperfect consumers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    4. Umezawa, Masashi, 2022. "Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs," Information Economics and Policy, Elsevier, vol. 61(C).
    5. Hoe Sang Chung, 2020. "Quality choice and behavior-based price discrimination," Journal of Economics, Springer, vol. 131(3), pages 223-236, December.
    6. Rosa-Branca Esteves & Sofia Cerqueira, "undated". "Behaviour-Based Price Discrimination under Advertising and Imperfectly Informed Consumers," NIPE Working Papers 08/2014, NIPE - Universidade do Minho.
    7. Zhang, Xinhua & Hueng, C. James & Lemke, Robert J., 2023. "A self-selection pricing mechanism for residential electricity: Measures of sustainability and equity to balance market mechanisms and government controls," Journal of Policy Modeling, Elsevier, vol. 45(6), pages 1167-1183.
    8. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    9. Esteves, Rosa-Branca & Cerqueira, Sofia, 2017. "Behavior-based pricing under imperfectly informed consumers," Information Economics and Policy, Elsevier, vol. 40(C), pages 60-70.
    10. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.

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    More about this item

    Keywords

    Price discrimination; Informative advertising; Mixed pricing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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