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Investment in customer recognition and information exchange

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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.

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  • 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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    Citations

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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. Colombo, Stefano & Graziano, Clara & Pignataro, Aldo, 2024. "Imperfect history-based price discrimination with asymmetric market shares," Information Economics and Policy, Elsevier, vol. 67(C).
    6. 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.
    7. Shrivastav, Sumit, 2023. "Information, mis-information, and history-based price discrimination in a duopoly," Information Economics and Policy, Elsevier, vol. 65(C).
    8. 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.
    9. Rosa Brana Esteves & Joana Resende, 2017. "Personalized Pricing with Targeted Advertising: Who are the Winners?," NIPE Working Papers 02/2017, NIPE - Universidade do Minho.
    10. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    11. 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.
    12. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    13. 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.
    14. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    15. 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.
    16. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    17. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    18. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    19. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    20. 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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