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A Survey on the Economics of Behaviour-Based Price Discrimination

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Abstract

Economists have long been interested in understanding the profit, consumer surplus and welfare effects of an ancient marketing strategy: Price Discrimination. While it is not new that firms try frequently to segment customers in order to price discriminate, what has dramatically changed, with recent advances in information technologies, is the quality of consumer-specific data now available in many markets and how this information has been used by firms for price discrimination purposes. Specifically, thanks to information technology it is nowadays increasingly feasible for sellers to segment customers on the basis of their purchasing histories and to price discriminate accordingly. This form of price discrimination has been named in the literature as Behaviour-Based Price Discrimination (BBPD). For a long time economists have been concerned in understanding the economic effects of price discrimination in monopolistic markets. However, because imperfect competition is undoubtedly the most common economic setting, recent research on the field has been concerned with the following issues. Firstly, how are profit, consumer surplus and welfare affected when firms practice some form of price discrimination in imperfectly competitive markets? Secondly, in which circumstances may competitive firms have an incentive to price discriminate or rather to avoid it? As we will see, conclusions regarding the profit and welfare effects of price discrimination are strongly dependent upon the form of price discrimination, which in turn depends upon the form of consumer heterogeneity and the different instruments available for price discrimination. Basically, the aim of this survey is to clarify the two aforementioned issues in imperfectly competitive markets.

Suggested Citation

  • Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:5/2009
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    References listed on IDEAS

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    Cited by:

    1. Esteves, Rosa-Branca, 2010. "Pricing with customer recognition," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 669-681, November.
    2. Colombo, Stefano, 2015. "Should a firm engage in behaviour-based price discrimination when facing a price discriminating rival? A game-theory analysis," Information Economics and Policy, Elsevier, vol. 30(C), pages 6-18.
    3. Romain De Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    4. Hinnerk Gnutzmann, 2014. "Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare," DISCE - Working Papers del Dipartimento di Economia e Finanza def019, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. 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.
    6. Romain De Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    7. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    8. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    9. Oz Shy & Rune Stenbacka, 2011. "Customer recognition and competition," Working Papers 11-7, Federal Reserve Bank of Boston.
    10. repec:ctc:serie1:def19 is not listed on IDEAS
    11. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
    12. 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.
    13. Liu Qihong & Serfes Konstantinos, 2011. "Third-Degree Price Discrimination," Journal of Industrial Organization Education, De Gruyter, vol. 5(1), pages 1-23, March.
    14. Rosa-Branca Esteves & Qihong Liu & Jie Shuai, 2016. "Behavior-Based Price Discrimination in a Multi-Dimensional Preferences Market," NIPE Working Papers 4/2016, NIPE - Universidade do Minho.
    15. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," Working Papers halshs-00622291, HAL.
    16. 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.
    17. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    18. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
    19. Carroni, Elias, 2016. "Competitive customer poaching with asymmetric firms," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 173-206.
    20. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    21. repec:nip:nipewp:08/2014 is not listed on IDEAS
    22. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    23. Elias Carroni, 2015. "Competitive Behaviour-Based Price: Discrimination among Asymmetric Firms," Working Papers 1501, University of Namur, Department of Economics.
    24. repec:nip:nipewp:09/2014 is not listed on IDEAS
    25. repec:eee:iepoli:v:40:y:2017:i:c:p:60-70 is not listed on IDEAS

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