Sun, Ching-jen (2007): Dynamic Price Discrimination and Quality Provision Based on Purchase History.
Download (297kB) | Preview
This paper develops a general two-period model of product line pricing with customer recognition. Specifically, we consider a monopolist who can sell vertically differentiated products over two periods to heterogeneous consumers. Each consumer demands one unit of the product in each period. In the second period, the monopolist can condition the price-quality offers on the observed purchasing behavior in the first period. In this setup, the monopolist can price discriminate consumers not only by quality, but also by purchase history. Several interesting results are derived. First, we fully characterize the monopolist's optimal pricing strategy when there are two types of consumers, and a simple condition is given to determine whether the monopolist will price discriminate by quality in the first period. We compare it to the case when there is no customer recognition or the firm is able to commit to its future actions. When the type space is a continuum, we show that there is no fully separating equilibrium, and some properties of the optimal contracts (price-quality pairs) are characterized within the class of partitional PBE.
|Item Type:||MPRA Paper|
|Original Title:||Dynamic Price Discrimination and Quality Provision Based on Purchase History|
|Keywords:||Price discrimination; Supermodularity; Submodularity; Behavior-Based Pricing; Ratchet Effect; Bunching|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D42 - Monopoly
|Depositing User:||Ching-jen Sun|
|Date Deposited:||07 Aug 2008 10:07|
|Last Modified:||22 Aug 2016 15:33|
Acquisti, A., and H. R. Varian, "Conditioning Prices on Purchase History," Marketing Science, 24 (2005), 367-381.
Anderson, E. T., and I. Song, "Coordinating Price Reductions and Coupon Events," working paper (2004), Northwestern University.
Anderson, E. T., and J. Dana, "When Is Price Discrimination Profitable," working paper (2006).
Armstrong, M., "Economics Models of Price Discrimination," working paper (2006), University College London.
Bester, H., and R. Strausz, "Contracting with Imperfect Commitment and The Revelation Principle: The Single Agent Case," Econometrica, 69 (2001), 1077-1098.
Bhargava, H. K. and V. Choudhary, "Information Goods and Vertical Differentiation," Journal of Management Information Systems, 18(2) (2001), 85-102.
Binkley, A., "Casino Chain Mines Data on Gamblers, and Strikes Pay Dirt with Low-rollers," Wall Street Journal, May 4, 2000.
Chen, Yongmin, "Paying Customers to Switch," Journal of Economics and Management Strategy, 6 (1997), 877-897.
Courty, P. and H. Li, "Sequential Screening," Review of Economic Studies, 67 (2000), 697-717.
Deneckere, R. J. and R. P. McAfee, "Damaged Goods," Journal of Economics and Management Strategy, 5(2) (1996), 149-174.
Fudenberg, D. and J. Tirole, "Upgrades, Trade-ins, and Buybacks," Rand Journal of Economics, 29 (1998), 238-258.
Fudenberg, D. and J. Tirole, "Customer Poaching and Brand Switching," Rand Journal of Economics, 31 (2000), 634-657.
Fudenberg, D. and J. M. Villas-Boas, "Behavior-Based Price Discrimination and Customer Recognition," Economics and Information Systems (2007), Elsevier, Oxford.
Gale, I. L. and Holmes, T. J., "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, 83(1) (1993), 135-146.
Hart, O. D. and J. Tirole, "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, 55 (1988), 509-540.
Johnson, Justin and David Myatt, "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, 93(3) (2003), 748-774.
Laffont, J. J. and J. Tirole, "The Dynamics of Incentive Contracts," Econometrica, 56 (1988), 1153-1175.
McAfee, Preston, "Damaged Goods Pricing," working paper (2006), California Institute of Technology.
Milgrom, P. and I. Segal, "Envelope Theorems for Arbitrary Choice Sets," Econometrica, 70 (2002), 583-601.
Mussa, M. and S. Rosen, "Monopoly and Product Quality," Journal of Economic Theory, 18(2) (1978), 301-317.
Nevo, A. and C. Wolfram, "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," Rand Journal of Economics, 33(2) (2002), 319-339.
Salant, S. W., "When is Inducing Self-Selection Suboptimal for a Monopolist?," Quarterly Journal of Economics, 104(2) (1989), 391-397.
Stokey, N. L., "Intertemporal Price Discrimination," Quarterly Journal of Economics, 93(3) (1979), 355-371.
Stole, L., "Price Discrimination in Competitive Environments," Handbook of Industrial Organization, 3 (2005).
Streitfield, D. "On the Web Price Tags Blur: What You Pay Could Depend on Who You Are," The Washington Post, September 27, 2000, P. A1.
Taylor, C. R., "Supplier Surfing: Price-Discrimination in Markets with Repeat Purchases," Rand Journal of Economics, 34 (2003), 223-246.
Taylor, C. R., "Consumer Privacy and The Market for Customer Information," Rand Journal of Economics, 35 (2004), 631-651.
Turow, J., Feldman L. and K. Meltzer, "Open to Exploitation: American Shoppers Online and Offline," Annenberg Public Policy Center, University of Pennsylvania.
Varian, H. R., "Versioning information goods," in Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property, ed. by B. Kahin and H. R. Varian. MIT Press (2001).
Villas-Boas, J. M., "Product Line Design for a Distribution Channel," Marketing Science, 17(2) (1998), 604-631.
Villas-Boas, J. M., "Dynamic Competition with Customer Recognition," Rand Journal of Economics, 30 (1999), 604-631.
Villas-Boas, J. M., "Price Cycles in Markets with Customer Recognition," Rand Journal of Economics, 35 (2004), 486-501.
Weiss, R. M. and A. K. Mehrotra, "Online Dynamic Pricing: Efficiency, Equity and the Future of E-commerce," Virginia Journal of Law and Technology, 6(2) (2001), A 11.
Weitzman, O., "The `Ratchet Principle' and Performance Incentives," Bell Journal of Economics, 11 (1980), 302-308.
Zhang, J., "Dynamic Segmentation and Product Design," working paper (2005), University of California, Berkeley.