IDEAS home Printed from https://ideas.repec.org/p/nip/nipewp/02-2017.html
   My bibliography  Save this paper

Personalized Pricing with Targeted Advertising: Who are the Winners?

Author

Listed:

Abstract

This paper investigates who wins and who loses when firms depart from a mass advertising/uniform pricing strategy (benchmark model) to a targeted advertising/price discrimination one. We characterize the equilibrium outcomes in both settings. Then, we address the competitive and welfare effects of personalized pricing with targeted advertising by comparing the results obtained under this business strategy to the ones arising under the mass strategy. We show that all segment consumers are expected to pay higher average prices under the personalized advertising/pricing strategy. We also show that the personalized strategy might be a winning strategy for firms. The overall welfare effects of the personalized strategy are ambiguous. However, even when the personalized strategy boosts overall welfare, consumers might all be worse-off. Thus the paper gives support to concerns that have been raised regarding the firms' ability to adopt personalized strategies to boost protfis at the expense of consumers.

Suggested Citation

  • Rosa Brana Esteves & Joana Resende, 2017. "Personalized Pricing with Targeted Advertising: Who are the Winners?," NIPE Working Papers 02/2017, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:02/2017
    as

    Download full text from publisher

    File URL: http://repositorium.sdum.uminho.pt/bitstream/1822/44660/1/NIPE%20-%20WP02-2017.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    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. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
    4. Ambarish Chandra, 2009. "Targeted Advertising: The Role Of Subscriber Characteristics In Media Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 58-84, March.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    6. Taylor, Curtis R, 2003. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 223-246, Summer.
    7. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    8. Rosa-Branca Esteves & Joana Resende, 2016. "Competitive Targeted Advertising with Price Discrimination," Marketing Science, INFORMS, vol. 35(4), pages 576-587, July.
    9. repec:ebl:ecbull:v:12:y:2007:i:10:p:1-12 is not listed on IDEAS
    10. Lola Esteban & Jose M. Hernandez, 2007. "Strategic Targeted Advertising and Market Fragmentation," Economics Bulletin, AccessEcon, vol. 12(10), pages 1-12.
    11. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    12. Lola Esteban & José M. Hernández & José Luis Moraga‐González, 2006. "Customer Directed Advertising and Product Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 943-968, December.
    13. Bester, Helmut & Petrakis, Emmanuel, 1996. "Coupons and oligopolistic price discrimination," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 227-242.
    14. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    15. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
    16. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
    17. Esther Gal-Or & Mordechai Gal-Or & Jerrold H. May & William E. Spangler, 2006. "Targeted Advertising Strategies on Television," Management Science, INFORMS, vol. 52(5), pages 713-725, May.
    18. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-223, March.
    19. Greg Shaffer & Z. John Zhang, 2002. "Competitive One-to-One Promotions," Management Science, INFORMS, vol. 48(9), pages 1143-1160, September.
    20. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
    21. Nada Ben Elhadj-Ben Brahim & Rim Lahmandi-Ayed & Didier Laussel, 2014. "Is Targeted Advertising always Beneficial?," World Scientific Book Chapters, in: Kaddour Hadri & William Mikhail (ed.), Econometric Methods and Their Applications in Finance, Macro and Related Fields, chapter 20, pages 551-585, World Scientific Publishing Co. Pte. Ltd..
    22. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
    23. Rosa Branca Esteves, 2009. "Customer Poaching And Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    24. Yongmin Chen & Jason Pearcy, 2010. "Dynamic pricing: when to entice brand switching and when to reward consumer loyalty," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 674-685, December.
    25. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    26. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
    27. Liu, Qihong & Shuai, Jie, 2013. "Multi-dimensional price discrimination," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 417-428.
    28. Anindya Ghose & Ke‐Wei Huang, 2009. "Personalized Pricing and Quality Customization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1095-1135, December.
    29. 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)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Esteves, Rosa-Branca & Resende, Joana, 2019. "Personalized pricing and advertising: Who are the winners?," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 239-282.
    2. Rosa-Branca Esteves & Joana Resende, 2016. "Competitive Targeted Advertising with Price Discrimination," Marketing Science, INFORMS, vol. 35(4), pages 576-587, July.
    3. Rosa‐Branca Esteves & Qihong Liu & Jie Shuai, 2022. "Behavior‐based price discrimination with nonuniform distribution of consumer preferences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 324-355, April.
    4. Rosa-Branca Esteves, 2021. "Can personalized pricing be a winning strategy in oligopolistic markets with heterogeneous demand customers? Yes, it can," NIPE Working Papers 08/2021, NIPE - Universidade do Minho.
    5. Anderson, Simon & Baik, Alicia & Larson, Nathan, 2019. "Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts," CEPR Discussion Papers 13793, C.E.P.R. Discussion Papers.
    6. Rosa Branca Esteves, 2009. "Customer Poaching And Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    7. Rosa‐Branca Esteves & Helder Vasconcelos, 2015. "Price Discrimination under Customer Recognition and Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 523-549, September.
    8. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    9. Esteves, Rosa-Branca, 2010. "Pricing with customer recognition," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 669-681, November.
    10. Esteves, Rosa-Branca & Cerqueira, Sofia, 2017. "Behavior-based pricing under imperfectly informed consumers," Information Economics and Policy, Elsevier, vol. 40(C), pages 60-70.
    11. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    12. Umezawa, Masashi, 2022. "Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs," Information Economics and Policy, Elsevier, vol. 61(C).
    13. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    14. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.
    15. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    16. Lola Esteban & José Hernández, 2014. "Endogenous direct advertising and price competition," Journal of Economics, Springer, vol. 112(3), pages 225-251, July.
    17. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    18. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    19. Carroni, Elias, 2016. "Competitive customer poaching with asymmetric firms," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 173-206.
    20. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:02/2017. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: NIPE (email available below). General contact details of provider: https://edirc.repec.org/data/nipampt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.