Endogenous personalized pricing in the Hotelling model
- Resource Type
- Authors
- Harold Houba; Evgenia Motchenkova; Hui Wang
- Source
- Economics Letters, 225:111037, 1-4. Elsevier
Houba, H, Motchenkova, E & Wang, H 2023, ' Endogenous personalized pricing in the Hotelling model ', Economics Letters, vol. 225, 111037, pp. 1-4 . https://doi.org/10.1016/j.econlet.2023.111037
- Subject
- Economics and Econometrics
Profit paradox
Oligopoly
Hotelling model
Finance
Personalized prices
Technology adoption
- Language
- English
- ISSN
- 0165-1765
We study endogenous personalized pricing in Hotelling's model with vertically differentiated products, cost asymmetries and linear adjustment costs. We characterize the equilibrium and its welfare consequences. Adopting personalized pricing is the dominant strategy for both companies. The less efficient company never gains compared to competition in uniform pricing. We clarify the conditions under which the more efficient company can gain from competition in personalized pricing. Aggregate consumer surplus increases, but personalized pricing can harm consumers who purchase from the more-efficient (high-quality) firm.