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Quality of Information and Oligopolistic Price Discrimination

Author

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  • Qihong Liu

    (State Univ. of New York, Stony Brook)

  • Konstantinos Serfes

    (State Univ. of New York, Stony Brook)

Abstract

Recent developments in information technology (IT) have resulted in the collection of a vast amount of customer specific data. As the IT advances the quality of such information improves. We analyze a sequential spatial model of oligopolistic third degree price discrimination where the firms use the available information to classify the consumers into segments and charge each consumer group a different price. Higher information quality increases the number of identifiable consumer groups. Among our findings: i) when the information quality is low, a unilateral commitment not to price discriminate arises in equilibrium, but for high information precision such a commitment is a dominated strategy and the game becomes a prisoners' dilemma and ii) equilibrium profits exhibit a U-shape relationship with the information quality.

Suggested Citation

  • Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization 0207007, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0207007
    Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 34 ; figures: included
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    Keywords

    Price discrimination; Information quality; Information acquisition.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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