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Investment in customer recognition and information exchange

Author

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  • Oz Shy
  • Rune Stenbacka

Abstract

We investigate how costly acquisition and exchange of customer-specific information affects industry profit and consumer welfare. Consumers differ in their preferences for competing brands and in their switching costs between brands. Brand-producing firms use their acquired knowledge of customer-specific preferences to differentiate prices. We show that consumers are worse off when firms acquire information about their preferences and that information sharing between firms further magnifies their losses. No information sharing supports a subgame perfect equilibrium that is also efficient. Finally, equilibrium investments in customer information may be excessive if firms bear low costs of acquiring customer-specific information.

Suggested Citation

  • Oz Shy & Rune Stenbacka, 2012. "Investment in customer recognition and information exchange," Working Papers 12-4, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:12-4
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    References listed on IDEAS

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    Cited by:

    1. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    2. Romain De Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    3. Romain De Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    4. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    5. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    6. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.

    More about this item

    Keywords

    Consumers' preferences;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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