Behavior-Based Price Discrimination with strategic customer targeting
Abstract
This article analyzes behavior-based price discrimination in a two-period competition framework where firms endogenously collect consumer data and strategically target past customers. When firms strategically target customers: (i) they price-discriminate high valuation customers; (ii) they charge a homogeneous price to low valuation customers, even when they have precise information on them. Strategic targeting questions the main classical results of the literature: in a symmetric equilibrium firms do not compete for customer information acquisition and there is no consumer poaching. Sufficiently asymmetric data collection costs can restore previous results of the literature, and we discuss their implications for firms' data strategies and competition in digital markets.
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