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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
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    References listed on IDEAS

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    Cited by:

    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. 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.

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    Keywords

    Consumers' preferences;

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