Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Welfare Impacts of Behavior-Based Price Discrimination with Asymmetric Firms

  • Received : 2020.02.28
  • Accepted : 2020.03.25
  • Published : 2020.03.30
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Abstract

Purpose - This paper studies the welfare impacts of behavior-based price discrimination (BBPD) when firms are asymmetric in quality improvement costs. Design/methodology/approach - To this end, we consider a differentiated duopoly model with an inherited market share, where firms first make quality decisions and then compete in prices according to the pricing scheme, namely, uniform pricing or BBPD. Findings - We show that BBPD increases social welfare relative to uniform pricing if the firms' cost gap is large enough. This is because BBPD induces more consumers to buy a high-quality product than under uniform pricing, and because a low-cost firm's profit loss from BBPD decreases as the cost difference increases. Research implications or Originality - Our analysis offers policy implications for markets where BBPD raises antitrust concerns, and quality competition prevails.

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References

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