IDEAS home Printed from https://ideas.repec.org/p/fip/fedbwp/11-7.html
   My bibliography  Save this paper

Customer recognition and competition

Author

Listed:
  • Oz Shy
  • Rune Stenbacka

Abstract

We introduce three types of consumer recognition: identity recognition, asymmetric preference recognition, and symmetric preference recognition. We characterize price equilibria and compare profits, consumer surplus, and total welfare. Asymmetric preference recognition enhances profits compared with identity recognition, but firms have no incentive to exchange information regarding customer-specific preferences (symmetric preference recognition). Consumers would benefit from a policy panning information exchange regarding individual consumer preferences. Our welfare analysis shows that the gains to firms from uniform pricing (no recognition) are larger than the associated harm to consumers, regardless of which regime of customer recognition serves as the basis for comparison.

Suggested Citation

  • Oz Shy & Rune Stenbacka, 2011. "Customer recognition and competition," Working Papers 11-7, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:11-7
    as

    Download full text from publisher

    File URL: http://www.bostonfed.org/economic/wp/wp2011/wp1107.htm
    Download Restriction: no
    File URL: http://www.bostonfed.org/economic/wp/wp2011/wp1107.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pagano, Marco & Jappelli, Tullio, 1993. "Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. Bouckaert, J.M.C. & Degryse, H.A. & van Dijk, T., 2008. "Price Discrimination Bans on Dominant Firms," Other publications TiSEM 069a2046-4899-49ee-9048-5, Tilburg University, School of Economics and Management.
    3. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    4. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    5. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    6. 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.
    7. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    8. Taylor, Curtis R, 2003. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 223-246, Summer.
    9. Greg Shaffer & Z. John Zhang, 2000. "Pay to Switch or Pay to Stay: Preference‐Based Price Discrimination in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 397-424, June.
    10. Yongmin Chen, 2008. "Dynamic Price Discrimination With Asymmetric Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 729-751, December.
    11. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-359, December.
    12. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
    13. Cheung, Francis K. & Wang, X. Henry, 1999. "A note on the effect of price discrimination on entry: Research note," Journal of Economics and Business, Elsevier, vol. 51(1), pages 67-72, January.
    14. Gabrielsen, Tommy Staahl, 2004. "Customer poaching with differentiated products and switching costs," Working Papers in Economics 09/04, University of Bergen, Department of Economics.
    15. Thomas Gehrig & Rune Stenbacka, 2004. "Differentiation‐Induced Switching Costs and Poaching," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 635-655, December.
    16. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    17. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
    18. Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
    19. 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.
    20. Jiwoong Shin & K. Sudhir, 2010. "A Customer Management Dilemma: When Is It Profitable to Reward One's Own Customers?," Marketing Science, INFORMS, vol. 29(4), pages 671-689, 07-08.
    21. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    22. Carl Shapiro, 1986. "Exchange of Cost Information in Oligopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 433-446.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rosa‐Branca Esteves & Qihong Liu & Jie Shuai, 2022. "Behavior‐based price discrimination with nonuniform distribution of consumer preferences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 324-355, April.
    2. Sumit Shrivastav, 2021. "Price discrimination with imperfect consumer recognition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    4. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    5. Michael D. Wittman & Peter P. Belobaba, 2017. "Personalization in airline revenue management – Heuristics for real-time adjustment of availability and fares," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(4), pages 376-396, August.
    6. Muzaffer Buyruk & Ertan Güner, 2022. "Personalization in airline revenue management: an overview and future outlook," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 129-139, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    2. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
    3. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    4. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    5. Rosa‐Branca Esteves & Qihong Liu & Jie Shuai, 2022. "Behavior‐based price discrimination with nonuniform distribution of consumer preferences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 324-355, April.
    6. Bernard Caillaud & Romain De Nijs, 2014. "Strategic Loyalty Reward in Dynamic Price Discrimination," Marketing Science, INFORMS, vol. 33(5), pages 725-742, September.
    7. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    8. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    9. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," Working Papers halshs-00622291, HAL.
    10. Bernard Caillaud & Romain de Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
    11. Choe, Chongwoo & Matsushima, Noriaki & Tremblay, Mark J., 2022. "Behavior-based personalized pricing: When firms can share customer information," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    12. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
    13. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    14. 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.
    15. Rosa‐Branca Esteves & Helder Vasconcelos, 2015. "Price Discrimination under Customer Recognition and Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 523-549, September.
    16. Rhee, Ki-Eun, 2014. "What types of switching costs to create under behavior-based price discrimination?," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 209-221.
    17. 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).
    18. 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.
    19. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    20. Ki-Eun Rhee & Raphael Thomadsen, 2017. "Behavior-Based Pricing in Vertically Differentiated Industries," Management Science, INFORMS, vol. 63(8), pages 2729-2740, August.

    More about this item

    Keywords

    Consumers' preferences;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:11-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Spozio (email available below). General contact details of provider: https://edirc.repec.org/data/frbbous.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.