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Pricing with Customer Recognition

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Abstract

This article studies the dynamic effects of behaviour-base price discrimination and customer recognition in a duopolistic market where the distribution of consumers' preferences is discrete. In the static and firs-period equilibrium firms choose prices with mixed strategies. When price discrimination is allowed, forward-looking firms have an incentive to avoid customer recognition, thus the probability that both will have positive first-period sales decreases as they become more patient. Furthermore, an asymmetric equilibrium sometimes exists, yielding a 100-0 division of the first-period sales. As a whole, price discrimination is bad for profits but good for consumer surplus and welfare.

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  • Rosa Branca Esteves, 2007. "Pricing with Customer Recognition," NIPE Working Papers 27/2007, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:27/2007
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