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Pricing with customer recognition

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  • Esteves, Rosa-Branca

Abstract

This article studies the dynamic effects of behaviour-based price discrimination and customer recognition in a duopolistic market where the distribution of consumers' preferences is discrete. Consumers are myopic and firms are forward looking. In the static and first-period equilibrium firms choose prices with mixed strategies. When price discrimination is allowed, forward-looking firms have an incentive to avoid customer recognition, thus the probability that both will have positive first-period sales decreases as they become more patient. Furthermore, an asymmetric equilibrium sometimes exists, yielding a 100-0 division of the first-period sales. As a whole, price discrimination is bad for profits but good for consumer surplus and welfare.

Suggested Citation

  • Esteves, Rosa-Branca, 2010. "Pricing with customer recognition," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 669-681, November.
  • Handle: RePEc:eee:indorg:v:28:y:2010:i:6:p:669-681
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