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Investment in customer recognition and information exchange

Author

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  • Shy, Oz
  • Stenbacka, Rune
Abstract
We investigate how costly acquisition and exchange of customer-specific information affects industry profit and consumer welfare. Consumers differ in their preferences for competing brands and in their switching costs between brands. Brand-producing firms use their acquired knowledge of customer-specific preferences to differentiate prices. We show that consumers are worse off when firms acquire information about their preferences and that information sharing between firms further reduces consumer welfare. Non-sharing of information supports a subgame perfect equilibrium that is also efficient. Finally, equilibrium investments in customer recognition may be excessive if firms bear low costs of acquiring customer-specific information.

Suggested Citation

  • Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    • Handle: RePEc:eee:iepoli:v:25:y:2013:i:2:p:92-106
    DOI: 10.1016/j.infoecopol.2013.03.002
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    2. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    3. Choe, Chongwoo & Matsushima, Noriaki & Tremblay, Mark J., 2022. "Behavior-based personalized pricing: When firms can share customer information," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    4. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2022. "Data brokers co-opetition [The impact of big data on firm performance: an empirical investigation]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 820-839.
    5. Sumit Shrivastav, 2021. "Profitability of behavior based price discrimination," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-019, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Shrivastav, Sumit, 2023. "Information, mis-information, and history-based price discrimination in a duopoly," Information Economics and Policy, Elsevier, vol. 65(C).
    7. Sumit Shrivastav, 2021. "Price discrimination with imperfect consumer recognition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. Rosa Brana Esteves & Joana Resende, 2017. "Personalized Pricing with Targeted Advertising: Who are the Winners?," NIPE Working Papers 02/2017, NIPE - Universidade do Minho.
    9. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    10. Chongwoo Choe & Jiajia Cong & Chengsi Wang, 2024. "Softening Competition Through Unilateral Sharing of Customer Data," Management Science, INFORMS, vol. 70(1), pages 526-543, January.
    11. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    12. Rosa‐Branca Esteves & Qihong Liu & Jie Shuai, 2022. "Behavior‐based price discrimination with nonuniform distribution of consumer preferences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 324-355, April.
    13. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    14. Esteves, Rosa-Branca & Resende, Joana, 2019. "Personalized pricing and advertising: Who are the winners?," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 239-282.
    15. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    16. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    17. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    18. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    19. Rosa-Branca Esteves, "undated". "Behaviour-Based Price Discrimination with Retention Offers," NIPE Working Papers 09/2014, NIPE - Universidade do Minho.

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    More about this item

    Keywords

    Customer recognition; Preference recognition; Price discrimination; Exchange of information; Switching costs;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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