Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/248891
Authors: 
Laussel, Didier
Long, Ngo Van
Resende, Joana
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9346
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only if information precision is higher than a certain threshold level. This U-shaped relationship lends support to a popular view that knowledge is good only if it is sufficiently refined. When information accuracy can only be achieved through costly investment, we find that investing in profiling is profitable only if this allows to reach a high enough level of information precision. Consumers expected surplus being a hump-shaped function of information accuracy, we show that consumers have an incentive to lobby for privacy protection legislation which raises the cost of monopoly’s investment in information accuracy. However, this cost should not dissuade firms to collect some information on customers’ tastes, as the absence of consumers’ profiling is actually detrimental to consumers.
Subjects: 
consumers profiling
endogenous investment in profiling capability
dynamic monopoly
consumers‘ collective action on privacy protection legislation
JEL: 
C73
D42
L12
L15
Document Type: 
Working Paper

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