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Profitability of behavior based price discrimination

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  • Sumit Shrivastav

    (Indira Gandhi Institute of Development Research)

Abstract

In this paper, we analyze the profitability of price discrimination based on recognition of consumers' brand preferences, in a duopoly model with switching costs. We show that, in contrast to existing studies, price discrimination results into higher profits than uniform pricing if consumers are heterogeneous in terms of brand preferences and the extent of such heterogeneity is sufficiently high.

Suggested Citation

  • Sumit Shrivastav, 2021. "Profitability of behavior based price discrimination," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-019, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2021-019
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2021-019.pdf
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    References listed on IDEAS

    as
    1. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    2. 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.
    3. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    4. Esteves, Rosa-Branca, 2009. "Price discrimination with partial information: Does it pay off?," Economics Letters, Elsevier, vol. 105(1), pages 28-31, October.
    5. 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.
    6. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    BBPD; Consumer recognition; Price discrimination;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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