Behavior‐ and characteristic‐based price discrimination

Economics Manag Strategy

Shuai

2021

Firms commonly price discriminate across consumers based on purchase history, a practice known as behavior-based price discrimination (BBPD). Existing studies usually assume that consumer preferences follow uniform distribution, and find that BBPD benefits consumers at the cost of firms, prisoners' dilemma. In this paper, we consider a class of consumer preferences distribution and show that new profit and welfare results arise. In particular, when consumer preferences are sufficiently clustered at the center of the market (e.g. triangular distribution), BBPD boosts industry profits at the expense of consumers. This is opposite to the standard prisoners' dilemma results under uniform distribution. On the other hand, when consumer preferences are not clustered at the center of the market, the usual findings prevail. Our results highlight the important role of the shape of preferences and provide useful implications for relevant players including managers, regulators and consumer advocates. * We thank Ramon Casadesus-Masanell (the editor), a co-editor and two anonymous referees whose comments and suggestions helped us improve this paper significantly. We are grateful to Luis Cabral for inspiring us to model a class of non-uniform distribution, and to participants at the China Meeting of the Econometric Society (Chengdu, 2016) and the International Workshop on Innovation and Industrial Economics (Nanjing University, China, 2016) for helpful comments and suggestions. This research has been financed by Portuguese public funds through FCT (Fundação para a Ciência e a Tecnologia) within the projects PTDC/IIM-ECO/2280/2014 and PTDC/EGE-ECO/28540/2017. Any errors are our own responsibility.

Section: The Modelmentioning

confidence: 99%

“…. This symmetric distribution has the advantage of allowing us to investigate BBPD under uniform and nonuniform distribution 7 For an analysis of BBPD with imperfect correlated preferences across time see Chen and Pearcy (2010). of consumer preferences.…”

Section: Distribution Of Consumer Preferencesmentioning

confidence: 99%

Behavior‐based price discrimination with nonuniform distribution of consumer preferences

Esteves

Economics Manag Strategy

Shuai

2021

“…Jing (2017) studied how behaviour-based price discrimination (BBPD) affects the endogenous quality differences and profits of enterprises in a two-stage vertical duopoly. The BBP model constructed by Colombo (2018) considers the personality characteristics of consumers. Liu et al (2019) discussed the impact of government subsidies on the production cost of organic agricultural products on the behavioural pricing and profits of enterprises when conducting BBP on organic and ordinary agricultural product producers.…”

Section: Literature Reviewmentioning

confidence: 99%

Behaviour-based Pricing in the Green Product Supply Chain

Cao

et al. 2021

Preprint

We study the pricing strategies of supply chains of green products under behaviour-based pricing. Considering consumer preferences for green product functional attributes and environmental attributes, we construct a two-stage supply chain. The optimal behaviour pricing of green products is solved, and the effects of green sensitivity and the cost coefficient on the optimal price are analysed. We find that when consumers are less sensitive to the greenness, with the increase in the market share of green products, green product retailers will increase the loyalty price. An increase in greenness sensitivity and a decrease in the greenness cost coefficient will increase the wholesale prices and retail prices of green products. Consumer attention to the greenness and a decrease in the initial market share of green products will be conducive to promoting the greenness and improving the environment. Consumers' emphasis on the greenness of their products will lead to higher profits for the manufacturers and retailers of green products.

“…Esteves and Reggiani (2014) [11] analyzes the impact of demand elasticity on behavior-based price discrimination's profit, consumer, and welfare effects. Colombo (2018) [12] develops a discriminatory pricing model based on behavior and customer characteristics, believing that consumers are heterogeneous in taste and price sensitivity, and the influence of price discrimination depends on the type and level of heterogeneity of consumers.…”

Section: Literature Reviewmentioning

confidence: 99%

Behavior-Based Pricing of Organic and Conventional Agricultural Products Based on Green Subsidies

Lan

et al. 2019

Sustainability

This study considers two types of consumers: those without preference difference, and those that prefer organic agricultural products. It constructs two two-stage hoteling behavior-based pricing models and solves for the optimal loyalty price and poaching price of the two types of enterprises. It analyzes the influence of subsidies on the pricing of the two types of products and corporate profits. The study also undertakes numerical simulation for further analysis, finding that green subsidies are negatively correlated with the loyalty price and poaching price of organic agricultural products, but that they will not affect the difference between the two types of prices. When the inherited market of organic agricultural products is dominant, the size of green subsidy affects the relationship between the prices of the two types of products. However, when organic agricultural products do not dominate the initial market, green subsidies do not affect the size of the relationship between the two prices of the two types of products. When the initial market position of organic agricultural products is different, the types of competing customers are different between the two types of enterprises, and the intensity of competition will increase with the increase of subsidies. Green subsidies increase the profits of organic agricultural enterprises and reduce the profits of conventional agricultural enterprises.