Abstract
We study endogenous personalized pricing in Hotelling's model with vertically differentiated products, cost asymmetries and linear adjustment costs. We characterize the equilibrium and its welfare consequences. Adopting personalized pricing is the dominant strategy for both companies. The less efficient company never gains compared to competition in uniform pricing. We clarify the conditions under which the more efficient company can gain from competition in personalized pricing. Aggregate consumer surplus increases, but personalized pricing can harm consumers who purchase from the more-efficient (high-quality) firm.
| Original language | English |
|---|---|
| Article number | 111037 |
| Pages (from-to) | 1-4 |
| Number of pages | 4 |
| Journal | Economics Letters |
| Volume | 225 |
| DOIs | |
| Publication status | Published - Apr 2023 |
Bibliographical note
Funding Information:We would like to thank Jose Luis Moraga Gonzalez and participants of the World Congress of the Econometric Society 2020 for their comments and suggestions. In particular, we thank the anonymous referee for several valuable comments that improved our note. Hui Wang is grateful to the Chinese Academy of Science for support and the Vrije Universiteit Amsterdam for their hospitality and generosity.
Publisher Copyright:
© 2023 The Author(s)
Funding
We would like to thank Jose Luis Moraga Gonzalez and participants of the World Congress of the Econometric Society 2020 for their comments and suggestions. In particular, we thank the anonymous referee for several valuable comments that improved our note. Hui Wang is grateful to the Chinese Academy of Science for support and the Vrije Universiteit Amsterdam for their hospitality and generosity.
Keywords
- Hotelling model
- Oligopoly
- Personalized prices
- Profit paradox
- Technology adoption