Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88095
Authors: 
Sapi, Geza
Suleymanova, Irina
Year of Publication: 
2013
Series/Report no.: 
DICE Discussion Paper 117
Abstract: 
We investigate how firms' incentives to acquire customer data for targeted offers depend on its quality. A two-dimensional Hotelling model is proposed where consumers are heterogeneous both with respect to their locations and transportation cost parameters (flexibility). Firms have perfect data on the locations of consumers while data on their flexibility is imperfect. When consumers are relatively homogeneous in their flexibility, in equilibrium both firms acquire customer data regardless of its quality. This increases profits but harms consumers. When consumers are relatively differentiated in flexibility, data acquisition incentives depend on its quality. Only if the data is sufficiently precise, both firms acquire it and their profits decrease, while consumers are better-off. Our model has particular relevance for location-based marketing such as in mobile telephony, where firms have near-perfect information on the proximity of customers but may have imperfect knowledge of other consumer characteristics.
Subjects: 
Price Discrimination
Customer Data
Market Segmentation
JEL: 
D43
L13
L15
O30
ISBN: 
978-3-86304-116-8
Document Type: 
Working Paper

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