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Behavior-Based Pricing under Imperfectly Informed Consumers

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Abstract
This paper is a rst look at the dynamic e⁄ects of BBPD in a horizontally differentiation product market, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. We show that in comparison to no discrimination, firms reduce their advertising efforts, charge higher first period prices and lower second period prices. As a result of that in contrast to the profit and consumer welfare results obtained under full informed consumers, we show that BBPD boosts industry profits at the expense of consumer welfare.

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  • Rosa Brana Esteves & Sofia Cerqueira, 2017. "Behavior-Based Pricing under Imperfectly Informed Consumers," NIPE Working Papers 03/2017, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:03/2017
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    Cited by:

    1. Jean-Pierre I. Rest & Alan M. Sears & Li Miao & Lorna Wang, 2020. "A note on the future of personalized pricing: cause for concern," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(2), pages 113-118, April.
    2. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.
    3. Xuan Wang & Chi To Ng, 2020. "New retail versus traditional retail in e-commerce: channel establishment, price competition, and consumer recognition," Annals of Operations Research, Springer, vol. 291(1), pages 921-937, August.
    4. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Cambridge Working Papers in Economics 2159, Faculty of Economics, University of Cambridge.
    5. Hoe Sang Chung, 2020. "Quality choice and behavior-based price discrimination," Journal of Economics, Springer, vol. 131(3), pages 223-236, December.
    6. Lei Yan & Yuxiang Zhang & Shue Mei & Weijun Zhong, 2024. "Personalized pricing with persuasive advertising and the value of consumer information: a duopoly framework," Electronic Commerce Research, Springer, vol. 24(3), pages 1533-1562, September.
    7. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Janeway Institute Working Papers 2104, Faculty of Economics, University of Cambridge.
    8. Umezawa, Masashi, 2022. "Behavior-based price discrimination in a horizontally and vertically differentiated duopoly with switching costs," Information Economics and Policy, Elsevier, vol. 61(C).
    9. Michel Tolksdorf, 2023. "On Point Predictions and Reference Dependence in Behavior-Based Pricing Experiments," Journal of Economics and Behavioral Studies, AMH International, vol. 15(1), pages 1-14.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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