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Home > Advances in Applied Microeconomics > Volume 9 > Document Request: Behavior-based price discrimination and consumer switching...
Advances in Applied Microeconomics
ISSN: 0278-0984
Series editor(s): Professor Michael Baye, Professor John Maxwell
Subject Area: Economics
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Document request:
Behavior-based price discrimination and consumer switching
| Title: | Behavior-based price discrimination and consumer switching |
|---|---|
| Author(s): | Maria Arbatskaya |
| Volume: | 9 Editor(s): Michael R. Baye ISBN: 978-0-76230-687-9 eISBN: 978-1-84950-064-7 |
| Citation: | Maria Arbatskaya (2000), Behavior-based price discrimination and consumer switching, in Michael R. Baye (ed.) Industrial Organization (Advances in Applied Microeconomics, Volume 9), Emerald Group Publishing Limited, pp.149-171 |
| DOI: | 10.1016/S0278-0984(00)09049-0 (Permanent URL) |
| Publisher: | Emerald Group Publishing Limited |
| Article type: | Full length article |
| Abstract: | A common practice among utility companies is to offer discounts to consumers who use a rival's services in an attempt to induce them to switch suppliers. This chapter examines a two-period model of price competition on a Hotelling line that captures this type of price discrimination. In the first period, firms have no information about individual consumers' preferences and, therefore, they post a single price. In the second period, each firm gains information about consumers' first-period purchase decisions. We show that firms have an incentive to use this information to price discriminate. A firm charges a lower price to its rival's customers (`pays consumers to switch') whenever the firm is not too disadvantaged with respect to its marginal cost. Even when consumers' switching costs are non-trivial, a re-segmentation of the market prevails in the unique subgame-perfect equilibrium to the game. An analysis of the impact of this kind of price discrimination on consumer surplus, firm profits, and social welfare is also presented. |
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