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.

scholarly journals Banning Price Discrimination under Imperfect Competition: Evidence from Colombia's Broadband

2020 ◽  
Author(s):  
Juan Sebastián Vélez-Velásquez
Keyword(s):  
Economic Theory ◽  
Price Discrimination ◽  
Low Income ◽  
Imperfect Competition ◽  
Consumer Surplus ◽  
Consumer Welfare ◽  
Market Segments ◽  
Uniform Price ◽  
Uniform Pricing ◽  
Price Discriminate

Economic theory is inconclusive regarding the effects of banning third-degree price discrimination under imperfect competition because they depend on how the competing firms rank their market segments. When, relative to uniform pricing, all competitors want higher prices in the same market segments, a ban on price discrimination will reduce profits and benefit some consumers at the expense of others. If, instead, some firms want to charge higher prices in segments where their competitors want to charge lower prices, price discrimination increases competition driving all prices down. In this case, forcing the firms to charge uniform prices can increase their profits and reduce consumer surplus. We use data on Colombian broadband subscriptions to estimate the demand for internet services. Estimated preferences and assumptions about competition are used to simulate a scenario in which firms lose their ability to price discriminate. Our results show large effects on consumer surplus and large effects on firms’ profits. Aggregate profits increase but the effects for individual firms are heterogeneous. The effects on consumer welfare vary by city. In most cities, a uniform price regime causes large welfare transfers from low-income households towards high-income households and in a few cities, prices in all segments rise. Poorer households respond to the increase in prices by subscribing to internet plans with slower download speed.

scholarly journals Competitive Personalized Pricing

2020 ◽  
Vol 66 (9) ◽  
pp. 4003-4023 ◽  
Author(s):  
Zhijun Chen ◽  
Chongwoo Choe ◽  
Noriaki Matsushima
Keyword(s):  
Social Welfare ◽  
Price Discrimination ◽  
Identity Management ◽  
Consumer Surplus ◽  
Consumer Information ◽  
Deadweight Loss ◽  
Market Segment ◽  
Target Segment ◽  
Price Discriminate

We study a model where each competing firm has a target segment where it has full consumer information and can exercise personalized pricing, and consumers may engage in identity management to bypass the firm’s attempt to price discriminate. In the absence of identity management, more consumer information intensifies competition because firms can effectively defend their turf through targeted personalized offers, thereby setting low public prices offered to nontargeted consumers. But the effect is mitigated when consumers are active in identity management because it raises the firm’s cost of serving nontargeted consumers. When firms have sufficiently large and nonoverlapping target segments, identity management can enable firms to extract full surplus from their targeted consumers through perfect price discrimination. Identity management can also induce firms not to serve consumers who are not targeted by either firm when the commonly nontargeted market segment is small. This results in a deadweight loss. Thus, identity management by consumers can benefit firms and lead to lower consumer surplus and lower social welfare. Our main insight continues to be valid when a fraction of consumers are active in identity management or when there is a cost of identity management. We also discuss the regulatory implications for the use of consumer information by firms as well as the implications for management. This paper was accepted by Juanjuan Zhang, marketing.

A Note on the Multidimensional Monopolist Problem and Intertemporal Price Discrimination

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Mariano G Runco
Keyword(s):  
Price Discrimination ◽  
Price Strategy ◽  
Incentive Compatible ◽  
Step Functions ◽  
Intertemporal Price Discrimination ◽  
Ex Ante ◽  
Posted Prices ◽  
Price Discriminate ◽  
Heterogeneous Consumers ◽  
Over Time

This note analyzes a model of a monopolist selling multiple goods to a continuum of heterogeneous consumers. The implementation of Direct Revelation Mechanisms is analyzed in that setting, finding that it is possible for the monopolist to implement all Stochastic Incentive Compatible Mechanisms by committing to post a decreasing sequence of prices. The posted prices depend on time and have the desirable property of being step functions. When the optimal mechanisms are stochastic, it is optimal for the monopolist to price discriminate over time, contrary to the conventional wisdom that a single-good monopolist committed to an ex-ante price strategy will not price discriminate.

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

scholarly journals Sellouts, Beliefs, and Bandwagon Behavior

2018 ◽  
Vol 19 (1) ◽  
Author(s):  
Nick Vikander
Keyword(s):  
Willingness To Pay ◽  
Private Information ◽  
Aggregate Demand ◽  
Consumer Surplus ◽  
Strategic Reasoning ◽  
Dynamic Setting ◽  
Cursed Equilibrium ◽  
Limited Reasoning

AbstractThis paper examines how a firm can strategically use sellouts to influence consumers’ beliefs about its product’s popularity. A monopolist faces a market of conformist consumers, whose willingness to pay is increasing in their beliefs about aggregate demand. Consumers are broadly rational but have limited strategic reasoning about the firm’s incentives. Formally, I apply the concept of a ‘cursed equilibrium’, where consumers neglect how the firm’s chosen actions might be correlated with its private information about demand. I show that in a dynamic setting, the firm may choose its price and capacity so as to generate sellouts, specifically to exploit consumers’ limited reasoning. It does so to effectively conceal unfavorable information from consumers about past demand in a way that increases future profits. Sellouts tend to occur when demand is low, rather than high, and may be accompanied by introductory pricing. The analysis also demonstrates that the firm’s ability to mislead some consumers always benefits certain others, and can result in higher overall consumer surplus.

Analysis on Third-Degree Price Discrimination in Oligopoly Market Based on Static Game Theory

2014 ◽  
Vol 912-914 ◽  
pp. 1865-1873
Author(s):  
Xing You Gao
Keyword(s):  
Price Discrimination ◽  
Weighted Average ◽  
Complete Information ◽  
Equilibrium Price ◽  
Total Revenue ◽  
Static Game ◽  
Demand Functions ◽  
Equilibrium Prices ◽  
Linear Demand ◽  
The Relationship

Equilibrium production, equilibrium price and equilibrium total revenue in the case of implementing third-degree price discrimination and unified pricing were analyzed under the condition of two oligopoly firms with 2 sub markets by complete information static game method, and the relationship between the three indexes of the two cases were studied. The results showed that, under the condition of linear demand functions of the two sub markets, the equilibrium output of unified pricing was equal to the equilibrium output of discriminative pricing; the equilibrium price of unified pricing was weighted average of the equilibrium prices of two sub markets while discriminative pricing; the equilibrium total revenue of unified pricing was less than the equilibrium total revenue of discriminative pricing.

scholarly journals NILAI MANFAAT EKONOMI AIR HUTAN LARANGAN ADAT RUMBIO

2015 ◽  
Vol 10 (2) ◽  
pp. 27-43
Author(s):  
Enny Insusanty ◽  
Ambar Tri Ratnaningsih
Keyword(s):  
Data Collection ◽  
Willingness To Pay ◽  
Random Sampling ◽  
Economic Value ◽  
Consumer Surplus ◽  
Domestic Use ◽  
Value Of Water ◽  
Economic Value Of Water

This study aims to determine the estimated economic value of water in Rumbio Forest Indigenous Prohibition for domestic use existing community around the forest. The method of data collection is done in a survey by random sampling. The economic value of water for domestic use Rp 347 871 206 per year. Willingness to pay (WTP) is Rp1.907.657.086 per year in order to obtain the consumer surplus of Rp 1,559,785,880 per year. In addition there are 13 businesses sales of water to three villages around the Rumbio forest indigenous prohibition.

scholarly journals Testing Significance of Multi-Destination and Multi-Purpose Trip Effects in a Travel Cost Method Demand Model for Whale Watching Trips

2000 ◽  
Vol 29 (2) ◽  
pp. 183-191 ◽  
Author(s):  
John Loomis ◽  
Shizuka Yorizane ◽  
Douglas Larson
Keyword(s):  
Willingness To Pay ◽  
Count Data ◽  
Cost Model ◽  
Consumer Surplus ◽  
Travel Cost ◽  
Travel Cost Method ◽  
Demand Model ◽  
Generalized Model ◽  
Travel Cost Model ◽  
Recreation Site

Inclusion of multi-destination and multi-purpose visitors has an appreciable influence on a standard count data travel cost model derived estimate of willingness to pay but the differences are not statistically significant. We adapt a more general travel cost model (TCM) of Parsons and Wilson (1997) that allows for inclusion of multi-destination visitors as incidental demand to allow estimation of an unbiased measure of single and multi-destination willingness to pay for whale viewing using a single pooled equation. The primary purpose trip values from the standard TCM and simple generalized TCM model are identical at $43 per person per day and neither are significantly different from the $50 day value from a generalized model that distinguishes between joint and incidental trips. The general models avoid underestimation of total recreation site benefits that would result from omitting the consumer surplus of multi-destination visitors.

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