Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, July 23, 2020

The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit

The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit

By:

Laussel, Didier; Long, Ngo Van; Resende, Joana

Abstract:

We show that a monopolist's profit is higher if he refrains from collecting coarse information on his customers, sticking to constant uniform pricing rather than recognizing customers' segments through their purchase history. In the Markov-perfect equilibrium with coarse information collection, after each commitment period, a new introductory price is offered to attract new customers, creating a new market segment for price discrimination. Eventually, the whole market is covered. Shortening the commitment period results in lower profits. These results sharply differ from the ones obtained when the firm can uncover the exact willingness-to-pay of each previous customer.

URL:

http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-93&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2020/07/the-curse-of-knowledge-having-access-to-customer-information-can-be-detrimental-to-monopolys-profit.html

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