Please use this identifier to cite or link to this item:
Title: Personalized pricing and quality customization
Authors: Ghose, A.
Huang, K.-W. 
Issue Date: 2009
Citation: Ghose, A., Huang, K.-W. (2009). Personalized pricing and quality customization. Journal of Economics and Management Strategy 18 (4) : 1095-1135. ScholarBank@NUS Repository.
Abstract: We embed the principal-agent model in a model of spatial differentiation with correlated consumer preferences to investigate the competitive implications of personalized pricing and quality allocation (PPQ), whereby duopoly firms charge different prices and offer different qualities to different consumers, based on their willingness to pay. Our model sheds light on the equilibrium product-line pricing and quality schedules offered by firms, given that none, one, or both firms implement PPQ. The adoption of PPQ has three effects in our model: it enables firms to extract higher rents from loyal customers, intensifies price competition for nonloyal customers, and eliminates cannibalization from customer self-selection. Contrary to prior literature on one-to-one marketing and price discrimination, we show that even symmetric firms can avoid the well-known Prisoner's Dilemma problem when they engage in personalized pricing and quality customization. When both firms have PPQ, consumer surplus is nonmonotonic in valuations such that some low-valuation consumers get higher surplus than high-valuation consumers. The adoption of PPQ can reduce information asymmetry, and therefore sellers offer higher-quality products after the adoption of PPQ. Overall, we find that while the simultaneous adoption of PPQ generally improves total social welfare and firm profits, it decreases total consumer surplus. © 2009 Wiley Periodicals, Inc.
Source Title: Journal of Economics and Management Strategy
ISSN: 10586407
DOI: 10.1111/j.1530-9134.2009.00239.x
Appears in Collections:Staff Publications

Show full item record
Files in This Item:
There are no files associated with this item.


checked on May 19, 2023


checked on May 19, 2023

Page view(s)

checked on May 25, 2023

Google ScholarTM



Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.