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Information Acquisition and Price Discrimination

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  • Fatemi, Farshad

Abstract

We consider a Hotelling model of price competition where firms may acquire costly information regarding the preferences (i.e. “location”) of customers. By purchasing additional information, a firm has a finer partition regarding customer preferences, and its pricing decisions must be measurable with respect to this partition. If information acquisition decisions are common knowledge at the point where firms compete via prices, we show that a pure strategy subgame perfect equilibrium exists, and that there is “excess information acquisition” from the point of view of the firms. If information acquisition decisions are private information, a pure strategy equilibrium fails to exist. We compute a mixed strategy equilibrium for a range of parameter values.

Suggested Citation

  • Fatemi, Farshad, 2010. "Information Acquisition and Price Discrimination," MPRA Paper 20399, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20399
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Information Acquisition; Price Discrimination;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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