Year: 2004
Type: article
Abstract: Recent developments in information technology (IT) have resulted in the collection of a vast amount of customer‐specific data. As IT advances, the quality of such information improves. We analyze a unifying spatial price discrimination model that encompasses the two most studied paradigms of two‐group and perfect discrimination as special cases. Firms use the available information to classify the consumers into different groups. The number of identifiable consumer segments increases with the information quality. Among our findings (1) when the information quality is low, unilateral commitments not to price discriminate arise in equilibrium; (2) after a unique threshold of information precision such a commitment is a dominated strategy, and the game becomes a prisoners' dilemma; and (3) equilibrium profits exhibit a U‐shaped relationship with the information quality.
Authors: Qihong Liu, Konstantinos Serfes
Institutions: University of Massachusetts Amherst, Drexel University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W3121662957