Endogenous Acquisition of Information on Consumers Willingness to Pay in a Product Differentiated Duopoly
We look at the incentives of two firms, who produce horizontally differentiated products, to acquire information of a certain quality on consumer willingness to pay. A firm who possesses such information can offer its product to different consumer groups at different prices (third degree price discrimination). We show that ``acquiring information'' and ``price discriminating'' is each firm's dominant strategy (for relatively low information costs) resulting in lower profit than when neither firm is engaged in price discrimination. Moreover, and given that firms price discriminate, equilibrium profits and average price exhibit a U-shape as a function of the information quality. Consumers are unambiguously better off under price discrimination as each one pays a lower price than the uniform non- discriminatory price.
|Date of creation:||30 May 2001|
|Date of revision:|
|Note:||Type of Document - Acrobat PDF; prepared on PC; to print on PostScript (letter size paper); pages: 34; figures: included|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmalensee, Richard, 1981.
"Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination,"
American Economic Review,
American Economic Association, vol. 71(1), pages 242-47, March.
- Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Hwang Hae-shin, 1993. "Optimal Information Acquisition for Heterogenous Duopoly Firms," Journal of Economic Theory, Elsevier, vol. 59(2), pages 385-402, April.
- 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.
- Caglayan, Mustafa & Usman, Murat, 2000. "Costly signal extraction and profit differentials in oligopolistic markets," Economics Letters, Elsevier, vol. 69(3), pages 359-363, December.
- Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
- Hwang, Hae-shin, 1995. "Information Acquisition and Relative Efficiency of Competitive, Oligopoly and Monopoly Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 325-40, May.
- Creane, Anthony, 1996. "An informational externality in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 331-344, May.
- Bester, H. & Petrakis, E., 1994.
"Coupons and Oligopolistic Price Discrimination,"
1994-12, Tilburg University, Center for Economic Research.
- Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
- Beth Allen, 1986. "The Demand for (Differentiated) Information," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 311-323.
- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
- Thomas R. Palfrey, 1982. "Risk Advantages and Information Acquisition," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 219-224, Spring.
- Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:0105002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.