|
Archive@NYU >
Stern School of Business >
IOMS: Information Systems Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14103
|
| Title: | Personalized Pricing and Quality Differentiation |
| Authors: | Choudhary, Vidyanand
Ghose, Anindya
Mukhopadhyay, Tridas
Rajan, Uday |
| Keywords: | Personalized Pricing
Quality Differentiation
Price Competition |
| Issue Date: | Jan-2005 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | CeDER-05-07 |
| Abstract: | We develop an analytical framework to investigate the competitive
implications of personalized pricing (PP), whereby firms charge
different prices to different consumers, based on their willingness to
pay. We embed personalized pricing in a model of vertical product
differentiation, and show how it affects
firmsâÃÂàchoices
over quality. We show that
firmsâÃÂàoptimal
pricing strategies with PP may be non-monotonic in consumer valuations.
When the PP firm has a high quality both firms raise their qualities,
relative to the uniform pricing case. Conversely, when the PP firm has
low quality, both firms lower their qualities. Although many firms are
trying to implement such pricing policies, we find that a higher quality
firm can actually be worse off with PP. While it is optimal for the firm
adopting PP to increase product differentiation, the non-PP firm seeks
to reduce differentiation by moving in closer in the quality space.
While PP results in a wider market coverage, it also leads to aggravated
price competition between firms. Since this entails a change in
equilibrium qualities, the nature of the cost function determines
whether firms gain or lose by implementing such PP policies. Despite the
threat of first-degree price discrimination, we find that personalized
pricing with competing firms can lead to an overall increase in consumer welfare. |
| URI: | http://hdl.handle.net/2451/14103 |
| Appears in Collections: | CeDER Working Papers
IOMS: Information Systems Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
