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Quality of Information and Oligopolistic Price Discrimination

Listed author(s):
  • Qihong Liu

    (State Univ. of New York, Stony Brook)

  • Konstantinos Serfes

    (State Univ. of New York, Stony Brook)

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.

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Paper provided by EconWPA in its series Industrial Organization with number 0207007.

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Length: 34 pages
Date of creation: 07 Aug 2002
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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