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Customer Information Sharing: Strategic Incentives and New Implications

Authors: Kim, Byungcheol - Michigan State University
Choi, Jay Pil - Michigan State University
Keywords: Customer Information Sharing, Complements and Substitutes, Product Differentiation, Behavior-Based Price Discrimination, Merger and Acquisition, Middlemen
Issue Date: 2007
Series/Report no.: NET Institute Working Paper;07-27
Abstract: We study oligopolistic firms' incentives to share customer information about past purchase history in a situation where firms are uncertain about whether a particular consumer considers the product offerings complements or substitutes. By addressing this new type of behavior-based price discrimination, we show that both the incentive to share customer information and its effects on consumers depend crucially on the relative magnitudes of the prices that would prevail in the complementary and substitute markets if consumers were fully segmented according to their preferences. This paper has important implications for merger analysis when the primary motive for merger is the acquisition of another firm's customer lists. We also find that the informational regime in which firms reside can have an influence upon the choice of product differentiation. Additionally, our analysis suggests a new role of middlemen as information aggregators.
Appears in Collections:NET Institute Working Papers Series
NET Institute Working Papers Series

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