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Quality and Price Personalization under Customer Recognition: A Dynamic Monopoly Model

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  • Didier Laussel
  • Ngo Van Long
  • Joana Resende

Abstract

We present a model of hyper-segmentation of market, where a monopolist firm uses information technology to acquire, in one period, all the information about the preferences of consumers who purchase its vertically differentiated products within that period. Lower consumer types have an incentive to delay their purchases until next period in order to obtain a higher (and non-distorted) quality offer. The monopolist counters this incentive by offering higher informational rents. We analyse the dynamic game between the monopolist and the customers. We find that in a Markov perfect equilibrium, the firm expands the market progressively. The market is not covered in a twinkle of an eye, i.e., the dynamics is non-Coasian. Also, contrary to the Coasian result for a durable-good monopoly, we find that the profit of our non-durable good monopoly increases as the interval of commitment shrinks. The model yields some implications for regulatory policies regarding information collection and commitment period. Nous présentons un modèle d’hyper-segmentation du marché, dans lequel une entreprise monopoliste utilise les technologies de l’information pour acquérir, en une période, toutes les informations relatives aux préférences des consommateurs qui achètent ses produits différenciés verticalement au cours de cette période. Les consommateurs dont la préférence pour la qualité est faible ont l’intérêt à reporter leurs achats à la période suivante afin d'obtenir une offre de qualité supérieure (sans distorsion). Le monopoleur contrecarre cette intention en proposant des primes d’information plus élevés. Nous analysons le jeu dynamique entre le monopoleur et ses clients. Nous constatons que dans un équilibre parfait de Markov, l'entreprise élargit progressivement le marché. Le marché n’est pas couvert en un clin d’œil, c’est-à-dire que la dynamique n’est pas coasienne. En outre, contrairement au résultat coasien pour un monopole sur les biens durables, nous constatons que le profit de notre monopole sur les biens non durables augmente à mesure que l’intervalle d’engagement diminue. Le modèle entraîne certaines implications pour les politiques réglementaires en matière de collecte d'informations et de période d'engagement.

Suggested Citation

  • Didier Laussel & Ngo Van Long & Joana Resende, 2019. "Quality and Price Personalization under Customer Recognition: A Dynamic Monopoly Model," CIRANO Working Papers 2019s-03, CIRANO.
  • Handle: RePEc:cir:cirwor:2019s-03
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    More about this item

    Keywords

    Coasian Dynamics; Information Collection; Monopoly; Regulatory Policies; La dynamique coasienne; La collecte d’information; Monopole; Politiques réglementaires;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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