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Profit Effects of Consumers’ Identity Management: a dynamic model

Author

Listed:
  • Didier Laussel
  • Ngo Van Long
  • Joana Resende
Abstract
We consider a non-durable good monopoly that collects data on its customers in order to profile them and subsequently practice price discrimination on returning customers. The monopolist’s price discrimination scheme is leaky, in the sense that an endogenous fraction of consumers chooses to incur a privacy cost to become "active", i.e., to be able to conceal their identity when they return in the following periods. We characterize the Markov Perfect Equilibrium of the game. We find that, regardless of the accuracy of data on their customers, managers adjust their pricing and market expansion strategies to the presence of active customers in the following way: (i) reduce the pace at which introductory price falls over time, and (ii) strategically guarantee that market expansion is incomplete. The equilibrium number of passive customers in the market is found to be increasing in the level of the privacy cost. Investigating the impact of customers’ identity management on profits, we find that the monopoly profit is a U-shaped function of the privacy cost whatever the degree of the monopolist’s information accuracy. Still, the profit effects of consumers’ identity management choices are shown to depend on the monopolist’s profiling capabilities. Two customer profiling structures are compared. In the case of full information acquisition (FIA), the firm can practice personalized pricing on returning passive customers, while in the case of purchase history information (PHI), it has only enough information for group pricing. We show that in the FIA case, the monopoly equilibrium profit is globally an increasing function of the privacy cost while in the PHI case, it is almost always a globally decreasing function of it. Nous considérons un monopole de biens non durables qui collecte des données sur ses clients afin de les profiler et pratique ensuite une discrimination par les prix sur les clients qui reviennent. Le système de discrimination par les prix du monopoleur est fuyant, en ce sens qu'une fraction endogène de consommateurs choisit d'encourir un coût d’anonymisation pour devenir « actif », c'est-à-dire pour pouvoir dissimuler son identité à son retour dans les périodes suivantes. Nous caractérisons l'équilibre parfait de Markov du jeu. Nous constatons que, quelle que soit l'exactitude des données sur leurs clients, les gestionnaires ajustent leurs stratégies de tarification et d'expansion du marché à la présence de clients actifs de la manière suivante : (i) réduire le rythme auquel le prix de lancement baisse au fil du temps, et (ii) garantir stratégiquement que l'expansion du marché est incomplète. On constate que le nombre d'équilibre de clients passifs sur le marché est une fonction croissante du coût d’anonymisation. En étudiant l'impact de la gestion de l'identité des clients sur les profits, nous constatons que le profit du monopole est une fonction en forme de U du coût d’anonymisation, quel que soit le degré d'exactitude des informations du monopoleur. Pourtant, les effets sur le profit des choix de gestion de l'identité des consommateurs dépendent des capacités de profilage du monopoleur. Deux structures de profilage des clients sont comparées. Dans le cas de l'acquisition d'informations complètes (FIA), l'entreprise peut pratiquer une tarification personnalisée sur les clients passifs, tandis que dans le cas des informations sur l'historique des achats (PHI), elle ne dispose que d'informations suffisantes pour la tarification de groupe. Nous montrons que dans le cas FIA, le profit d'équilibre de monopole est globalement une fonction croissante du coût d’anonymisation alors que dans le cas PHI, il en est presque toujours une fonction globalement décroissante.

Suggested Citation

  • Didier Laussel & Ngo Van Long & Joana Resende, 2021. "Profit Effects of Consumers’ Identity Management: a dynamic model," CIRANO Working Papers 2021s-29, CIRANO.
    • Handle: RePEc:cir:cirwor:2021s-29
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumers’ Identity Management; Anonymization; Intertemporal Price Discrimination; Monopoly; Information Structures; gestion de l'identité des consommateurs; Anonymisation; Discrimination des prix; Monopole; Structures d'informations;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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