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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27741
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| Title: | Personalized Pricing and Quality Design |
| Authors: | Ghose, Anindya
Huang, Ke-Wei |
| Keywords: | Personalized Pricing
Non-linear pricing
Price discrimination
quality design |
| Issue Date: | 6-Nov-2008 |
| Series/Report no.: | CeDER-PP-2006-03 |
| Abstract: | We develop an analytical framework to investigate the competitive
implications of personalized pricing and quality allocation (PPQ),
whereby rms charge di¤erent prices and o¤er
di¤erent qualities to di¤erent consumers, based on their
willingness to pay. We embed PPQ in a model of spatial
di¤erentiation, and show how information about consumer
preferences a¤ects multi-product rms choices over pricing
schedules and product line o¤erings. We show that consumer
surplus with PPQ will be non-monotonic in consumer valuations. Our model
sheds light on the di¤erent product quality schedules
o¤ered by rms, given that one or both rms implement PPQ.
Contrary to prior literature on one-to-one marketing, we show that even
symmetric rms can avoid the well-known Prisoner s Dilemma problem due
to the quality enhancement e¤ect at the individual consumer
level. The rent extraction e¤ect due to quality enhancement
dominates the adverse e¤ect of price competition. Moreover, this
result is stronger when rms have a larger proportion of loyal
consumers. When both rms have PPQ, consumer surplus is non-monotonic in
valuations such that some low valuation consumers get higher surplus
than high valuation consumers. We extend our analysis to asymmetric rms
and show that when one rm adopts PPQ, it always increases its quality
level while the other rm keeps its quality schedule unchanged compared
to the case when neither rm has PPQ. We demonstrate that a rm with an
ex-ante, smaller loyal segment can be better o¤ with PPQ. |
| URI: | http://hdl.handle.net/2451/27741 |
| Appears in Collections: | CeDER Published Papers
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