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.

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.

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.

Purchase-Based Targeted Advertising

2015 ◽  
pp. 171-188
Author(s):  
Jianqiang Zhang ◽  
Weijun Zhong ◽  
Shue Mei
Keyword(s):  
Social Welfare ◽  
Consumer Surplus ◽  
Information Gathering ◽  
Consumer Information ◽  
Competitive Effect ◽  
Competitive Effects ◽  
Targeted Advertising ◽  
Competitive Environments ◽  
Duopoly Model

Purchase-Based Targeted Advertising (PBTA) refers to the advertising that is targeted to an individual based on his or her purchase histories, which is ubiquitous in the age of e-commerce. This chapter examines the competitive effects of PBTA by establishing a two-period duopoly model: the first period consists of the consumer information gathering process while the second is the period where PBTA is embraced. Based on this model, it is found that PBTA may improve or damage industry profits, consumer surplus, as well as social welfare. The conditions under which the competitive effect is positive or negative are derived, showing that whether PBTA is beneficial or detrimental depends on the content of advertising designed by the competing firms. It is suggested that firms under competitive environments cautiously deploy PBTA with appropriate advertising contents.

scholarly journals Price Discrimination with Varying Qualities of Information

2016 ◽  
Vol 16 (2) ◽  
pp. 1093-1121 ◽  
Author(s):  
Qihong Liu ◽  
Jie Shuai
Keyword(s):  
Price Discrimination ◽  
Information Acquisition ◽  
Information Quality ◽  
Consumer Surplus ◽  
Spatial Differentiation ◽  
Consumer Welfare ◽  
Consumer Information ◽  
Demand Elasticity ◽  
Social Surplus ◽  
Potential Damage

Abstract Advances in information technology have greatly enhanced firms’ ability to collect, market and utilize consumer information. As the market for consumer information expands rapidly, businesses are armed with unprecedented means to target any group of consumers they desire. This has important and far-reaching impacts on consumer welfare. In this paper we analyze the welfare impacts of price discrimination facilitated by increasing qualities of consumer information. We employ a two-dimensional spatial differentiation model where consumer information is available on one dimension, and better information leads to more refined price discrimination. We find that as information quality improves, equilibrium prices and profits monotonically increase while consumer surplus and social surplus monotonically decrease. Price discrimination has a reduced demand elasticity effect which becomes stronger when consumer information becomes more precise. Our results suggest that regulators need to pay more attention to the potential damage to consumer welfare by the increasing collection and utilization of consumer information. We also endogenize firms’ information acquisition decisions.

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.

scholarly journals Externalities and Regulation in Card Payment Systems

2006 ◽  
Vol 5 (1) ◽  
Author(s):  
Jean-Charles Rochet ◽  
Jean Tirole
Keyword(s):  
Social Welfare ◽  
Consumer Surplus ◽  
Welfare Analysis ◽  
Payment Systems ◽  
Interchange Fees ◽  
Regulatory Approach ◽  
Innovative Thinking ◽  
Card Payment ◽  
Economic Thinking

The paper offers a roadmap to the current economic thinking concerning interchange fees. After describing the fundamental externalities inherent in payment systems and analysing merchant resistance to interchange fee increases and the associations' determination of this fee, it derives the externalities' implications for welfare analysis. It then discusses whether consumer surplus or social welfare is the proper benchmark for regulatory purposes. Finally, it offers a critique of the current regulatory approach, and concludes with a call for more novel and innovative thinking about how to reconcile regulators' concerns and the industry legitimate desire to perform its balancing act.

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.

A Model of Queue Scalping

2021 ◽  
Author(s):  
Luyi Yang ◽  
Zhongbin Wang ◽  
Shiliang Cui
Keyword(s):  
Social Welfare ◽  
Service Provider ◽  
Operations Management ◽  
Consumer Surplus ◽  
System Throughput ◽  
Theoretic Model ◽  
Material Interest ◽  
Long Run ◽  
Short Run ◽  
Primary Service

Recent years have witnessed the rise of queue scalping in congestion-prone service systems. A queue scalper has no material interest in the primary service but proactively enters the queue in hopes of selling his spot later. This paper develops a queueing-game-theoretic model of queue scalping and generates the following insights. First, we find that queues with either a very small or very large demand volume may be immune to scalping, whereas queues with a nonextreme demand volume may attract the most scalpers. Second, in the short run, when capacity is fixed, the presence of queue scalping often increases social welfare and can increase or reduce system throughput, but it tends to reduce consumer surplus. Third, in the long run, the presence of queue scalping motivates a welfare-maximizing service provider to adjust capacity using a “pull-to-center” rule, increasing (respectively, reducing) capacity if the original capacity level is low (respectively, high). When the service provider responds by expanding capacity, the presence of queue scalping can increase social welfare, system throughput, and even consumer surplus in the long run, reversing its short-run detrimental effect on customers. Despite these potential benefits, such capacity expansion does little to mitigate scalping and may only generate more scalpers in the queue. Finally, we compare and contrast queue scalping with other common mechanisms in practice—namely, (centralized) pay-for-priority, line sitting, and callbacks. This paper was accepted by Victor Martínez de Albéniz, operations management.

STORE PROMOTION, MANUFACTURER COMPETITION AND WELFARE

2021 ◽  
pp. 1-18
Author(s):  
HAO WANG ◽  
XUNDONG YIN ◽  
ALICE Y. OUYANG
Keyword(s):  
Social Welfare ◽  
Consumer Preferences ◽  
Consumer Surplus ◽  
Weighted Average ◽  
Brand Name ◽  
Price Distortion ◽  
Online Platforms ◽  
Brand Competition ◽  
The Social ◽  
Partial Exclusion

This study evaluates the partial exclusion effects of store promotion. We find that a manufacturer with a better brand name has a higher willingness-to-pay for promotion services offered by retail stores or online platforms. The promotion results in higher sales-weighted average prices (wholesale and retail) and a larger inter-brand price gap. The stores or platforms extract more profits from manufacturers and consumers through the promotion services. The effects on consumer surplus and social welfare depend on whether the promotion alters consumer preferences. If it does, more consumers would be choosing their less-preferred brands because of the larger inter-brand price gap, which would be socially inefficient. If it does not, the promotion may help to correct the price distortion, but the social welfare effect is positive only when the promotion effect is small enough. In both cases, the promotion services reduce the total consumer surplus by softening inter-brand competition.

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