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Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition

Listed author(s):
  • Chongwoo Choe
  • Stephen King
  • Noriaki Matsushima

We study a two-period model of spatial competition with two symmetric firms where firms learn customers’ preferences from the first-period purchase, which they use for personalized pricing in the second period. With product choice exogenously fixed with maximal differentiation, we show that there exist two asymmetric equilibria and customer switching is only from one firm to the other unless firms discount future too much. Firms are worse off with such personalized pricing than when they use pricing at higher levels of aggregation. When product choice is also made optimally, there continue to exist two asymmetric equilibria given sufficiently small discounting, none of which features maximal differentiation. More customer information hurts firms, and more so when they make both product choice and pricing decisions.

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File URL: http://business.monash.edu/economics/research/publications/eco/0717pricingchoekinmatsushima.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 07-17.

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Length: 62 pages
Date of creation: Apr 2017
Handle: RePEc:mos:moswps:2017-07
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Department of Economics, Monash University, Victoria 3800, Australia

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Fax: +61-3-9905-5476
Web page: http://business.monash.edu/economics
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