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Imperfect Behavior‐Based Price Discrimination
Author(s) -
Colombo Stefano
Publication year - 2015
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12137
Subject(s) - perfect information , economic surplus , welfare , microeconomics , imperfect , economics , limit (mathematics) , price discrimination , monotonic function , complete information , inverse demand function , econometrics , information asymmetry , demand curve , mathematics , mathematical analysis , linguistics , philosophy , market economy
In this article, we develop a model encompassing behavior‐based discriminatory pricing as a limit case of a more general framework where firms have incomplete information about consumers’ purchase histories. We show that information accuracy has a nonmonotonic impact on profits and the worst situation for firms is when information accuracy is intermediate. We also discuss welfare and consumer surplus implications of information accuracy. Although welfare monotonically decreases with the level of information accuracy, there is an inverse U‐shape relationship between consumers surplus and information accuracy.