scholarly journals Targeted Value-Enhancing Advertising and Price Competition

2021 ◽  
Author(s):  
Lynne Pepall ◽  
Daniel Richards
Keyword(s):  
Price Discrimination ◽  
Price Competition ◽  
Consumer Surplus ◽  
Price Information ◽  
Targeted Advertising ◽  
Consumer Data

AbstractDigital markets provide firms with vast amounts of consumer data. Economists who have explored this phenomenon have focused on how firms use data to implement price discrimination. Targeted advertising in this context transmits different price information to different consumers. However, advertising is itself often valued by consumers, and can be viewed as a complement to the advertised product. Such advertising may also be customized and targeted. We investigate how targeted value-enhancing advertising affects competition. Competing for consumers with targeted advertising leads overall to higher prices and increases consumer surplus but reduces profitability. In certain markets the advertising is inefficiently over-supplied.

Competitive Effects of Purchase-Based Targeted Advertising

2012 ◽  
Vol 10 (4) ◽  
pp. 71-84
Author(s):  
Jianqiang Zhang ◽  
Weijun Zhong ◽  
Shue Mei
Keyword(s):  
Social Welfare ◽  
Product Differentiation ◽  
Price Competition ◽  
Consumer Surplus ◽  
Consumer Information ◽  
Competitive Effects ◽  
Targeted Advertising ◽  
Consumer Valuation ◽  
Competitive Environments ◽  
Second Period

This paper develops a two-period sales model to investigate the competitive effects of purchase-based targeted advertising. In the model, two competing firms gain consumer information during the first period sales, which allows them to target advertising based on consumer purchase history. Advertising is assumed to be persuasive in terms of consumer valuation enhancing and product differentiation increasing. The authors find that the firm’s ability to target can damage industry profits, consumer surplus, and even social welfare. The conditions under which targeted advertising is positive or negative are derived, showing that price competition is softened in the second period but intensified in the first. It is suggested that firms under competitive environments cautiously sponsor targeted advertising with appropriate contents.

Cournot and Bertrand Competition in a Model of Spatial Price Discrimination with Differentiated Products

2014 ◽  
Vol 14 (1) ◽  
pp. 251-272 ◽  
Author(s):  
Chia-Hung Sun
Keyword(s):  
Price Discrimination ◽  
Price Competition ◽  
Market Competition ◽  
Consumer Surplus ◽  
Social Planner ◽  
Quantity Competition ◽  
Spatial Price Discrimination ◽  
Location Equilibrium ◽  
Spatial Price ◽  
Cournot And Bertrand Competition

AbstractThis study investigates spatial price discrimination with two types of market competition – price competition and quantity competition – and two kinds of cross-relations between goods – substitutes and complements – with endogenous location choices in a barbell model. The results herein present that the maximum differentiation (end point agglomeration) is the unique location equilibrium with substitutes (complements), irrespective of what type of competition. We demonstrate that if the unit transportation rate is sufficiently high, then consumer surplus, profits, and social welfare are higher under price competition than under quantity competition for both substitutes and complements. This means that introducing a spatial barrier to competition generated through transportation costs may solve the problem of inconsistency from the conflict interests between consumers, firms, and a social planner.

A price discrimination based Cournot game model for high-speed rail and airline

2021 ◽  
pp. 1-9
Author(s):  
Jinyu Li ◽  
Xuemei Li ◽  
Ning Ma
Keyword(s):  
Social Welfare ◽  
Price Discrimination ◽  
Price Competition ◽  
High Speed ◽  
Consumer Surplus ◽  
High Speed Rail ◽  
Competitive Game ◽  
Cournot Game ◽  
Optimal Pricing Strategy ◽  
Multi Level

This study investigates the competitive game between high-speed rail and airline on price, profit and social welfare, taking into account the airline price discrimination. We build a multi-level price competition pricing Cournot model for high-speed rail and airline to shed light on the HSR-air transport competition impact of pricing discrimination when airline could offer multi-level class seats, and analyze the optimal pricing strategy of airlines and high-speed rail operators and their impact on social welfare. The analytical results demonstrate that: airline price dis-crimination will increase social welfare and reduce consumer surplus, both airfare and airline profit increase as the degree of price discrimination increases welfare. However, HSR fare and profit decreases with the increase of the degree of price discrimination.

Advertising and Price Competition Under Consumer Data Privacy Choices

2020 ◽  
Author(s):  
W. Jason Choi ◽  
Kinshuk Jerath ◽  
Miklos Sarvary
Keyword(s):  
Price Competition ◽  
Data Privacy ◽  
Consumer Data

Endogenous Timing in Vertically-Related Markets

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Hong-Ren Din ◽  
Chia-Hung Sun
Keyword(s):  
Social Welfare ◽  
Price Competition ◽  
Consumer Surplus ◽  
The Other ◽  
Endogenous Timing ◽  
Price Strategy ◽  
Quantity Competition ◽  
Sequential Game ◽  
Product Substitutability

Abstract This paper investigates the theory of endogenous timing by taking into account a vertically-related market where an integrated firm competes with a downstream firm. Contrary to the standard results in the literature, we find that both firms play a sequential game in quantity competition and play a simultaneous game in price competition. Under mixed quantity-price competition, the firm choosing a price strategy moves first and the other firm choosing a quantity strategy moves later in equilibrium. Given that the timing of choosing actions is determined endogenously, aggregate profit (consumer surplus) is higher (lower) under price competition than under quantity competition. Lastly, social welfare is higher under quantity competition than under price competition when the degree of product substitutability is relatively low.

scholarly journals Transparency of Behavior-Based Pricing

2019 ◽  
Vol 57 (1) ◽  
pp. 78-99 ◽  
Author(s):  
Xi Li ◽  
Krista J. Li ◽  
Xin (Shane) Wang
Keyword(s):  
Social Welfare ◽  
Consumer Surplus ◽  
Unintended Consequences ◽  
History Data ◽  
Consumer Data ◽  
Behavior Based ◽  
The Cost ◽  
Firm Profit ◽  
Commitment Device

Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.

Consumer surplus bias and the welfare effects of price discrimination

2019 ◽  
Vol 55 (1) ◽  
pp. 33-45
Author(s):  
Francisco Galera ◽  
Pedro Garcia-del-Barrio ◽  
Pedro Mendi
Keyword(s):  
Price Discrimination ◽  
Consumer Surplus ◽  
Welfare Effects

The Effects of Competition and Entry in Multi-sided Markets

2020 ◽  
Author(s):  
Guofu Tan ◽  
Junjie Zhou
Keyword(s):  
Price Competition ◽  
Consumer Surplus ◽  
Free Entry ◽  
Platform Competition ◽  
Equilibrium Pricing ◽  
The Social ◽  
Economic Forces ◽  
Pricing Formula

Abstract We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.

scholarly journals Consumer Scores and Price Discrimination

2019 ◽  
Vol 87 (2) ◽  
pp. 750-791 ◽  
Author(s):  
Alessandro Bonatti ◽  
Gonzalo Cisternas
Keyword(s):  
Willingness To Pay ◽  
Price Discrimination ◽  
Consumer Surplus ◽  
Equilibrium Price ◽  
Bayes Rule ◽  
Ratchet Effect ◽  
Disaggregated Data ◽  
Price Discriminate ◽  
Linear Aggregate ◽  
Demand Sensitivity

Abstract We study the implications of aggregating consumers’ purchase histories into scores that proxy for unobserved willingness to pay. A long-lived consumer interacts with a sequence of firms. Each firm relies on the consumer’s current score–a linear aggregate of noisy purchase signals—to learn about her preferences and to set prices. If the consumer is strategic, she reduces her demand to manipulate her score, which reduces the average equilibrium price. Firms in turn prefer scores that overweigh past signals relative to applying Bayes’ rule with disaggregated data, as this mitigates the ratchet effect and maximizes the firms’ ability to price discriminate. Consumers with high average willingness to pay benefit from data collection, because the gains from low average prices dominate the losses from price discrimination. Finally, hidden scores—those only observed by the firms—reduce demand sensitivity, increase average prices, and reduce consumer surplus, sometimes below the naive-consumer level.

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