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Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria

Author

Listed:
  • Didier Laussel

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Ngo Van Long

    (Department of Economics [Montréal] - McGill University = Université McGill [Montréal, Canada], Hitotsubashi Institute for Advanced Study)

  • Joana Resende

    (Universidade do Porto = University of Porto)

Abstract

We present a model of market hyper-segmentation, where a monopolist acquires within a short time all information about the preferences of consumers who purchase its vertically differentiated products. The firm offers a new price/quality schedule after each commitment period. Lower consumer types may have an incentive to delay their purchases until next period to obtain a better introductory offer. The monopolist counters this incentive by offering higher informational rents. Considering the dynamic game played by the monopolist and its customers, we find that there is always a Markov perfect equilibrium (MPE) in which the firm immediately sells the good to all customers, offering the Mussa-Rosen static equilibrium schedule to first time customers (and getting full commitment profits). However, if the commitment period between two offers is long enough, there is another MPE with gradual market expansion. Contrary to the Coasian result for a durable-good monopoly, we find that in both equilibria the profit of the monopolist increases (and the aggregate consumers surplus decreases) as the interval of commitment shrinks. The model yields policy implications for regulations on collection and storage of customers information. (C) 2020 Elsevier B.V. All rights reserved.

Suggested Citation

  • Didier Laussel & Ngo Van Long & Joana Resende, 2020. "Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria," Post-Print hal-02909685, HAL.
    • Handle: RePEc:hal:journl:hal-02909685
    DOI: 10.1016/j.jedc.2020.103869
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    Cited by:

    1. Didier Laussel & Ngo Van Long, 2022. "Quality differentiation in durable goods monopoly always yields strictly positive profits," Economics Bulletin, AccessEcon, vol. 42(2), pages 546-552.
    2. Okuyama, Suzuka, 2024. "Behavior-based price discrimination and elastic demand," MPRA Paper 120949, University Library of Munich, Germany.
    3. Didier Laussel & Ngo Van Long & Joana Resende, 2023. "Profit Effects of Consumers’ Identity Management: A Dynamic Model," Management Science, INFORMS, vol. 69(6), pages 3602-3615, June.
    4. Didier Laussel & Ngo Van Long & Joana Resende, 2022. "Dynamic monopoly and consumers profiling accuracy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 579-608, August.
    5. Didier Laussel & Ngo Long & Joana Resende, 2022. "Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Discrimination," Dynamic Games and Applications, Springer, vol. 12(2), pages 574-607, June.
    6. Lei Yan & Yuxiang Zhang & Shue Mei & Weijun Zhong, 2024. "Personalized pricing with persuasive advertising and the value of consumer information: a duopoly framework," Electronic Commerce Research, Springer, vol. 24(3), pages 1533-1562, September.

    More about this item

    Keywords

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    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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