Author: Sumit Shrivastav
Title: Price Discrimination with Imperfect Consumer Recognition
Abstract: In this paper, we analyze the competitive and welfare effects of imperfect consumer recognition, in a duopoly model with switching costs. We demonstrate that the impact of consumer recognition on firms’ pricing strategies, industry profits, and welfare crucially depends on the accuracy of consumer recognition. When the extent of correct recognition is greater than that of incorrect recognition, equilibrium profits decrease with correct recognition and increase with incorrect recognition. Consumer surplus increases with correct recognition and falls with incorrect recognition. Welfare decreases with correct recognition, while impact of incorrect recognition on welfare is non-monotonic. On the other hand, when the extent of correct recognition is less than that of incorrect recognition, the reverse happens with equilibrium profits. The effect of correct recognition on consumer surplus is ambiguous, and it increases with incorrect recognition. Welfare increases with correct recognition and may increase or decrease with incorrect recognition.
Keywords: BBPD; Consumer Recognition; Price Discrimination; Imperfect Information
JEL Code: D43, D80, L13, L40