Original Article
The curse of knowledge: having access to customer information can reduce monopoly profits
Didier Laussel,
Ngo V. Long,
Joana Resende,
Didier Laussel
Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE, France
Search for more papers by this authorCorresponding Author
Ngo V. Long
McGill University
McGill University
Search for more papers by this authorDidier Laussel,
Ngo V. Long,
Joana Resende,
Didier Laussel
Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE, France
Search for more papers by this authorCorresponding Author
Ngo V. Long
McGill University
McGill University
Search for more papers by this authorThe authors thank Editor Kathryn E. Spier and two referees for extremely helpful comments and suggestions. They thank Helder Vasconcelos and João Correia-da-Silva for insightful discussions. They are also grateful to seminar participants at Research School of Economics, ANU, and Hitotsubashi Institute for Advanced Study, Hitotsubashi University, for stimulating discussion.This research has been financed by projects NORTE-01-0145-FEDER-028540 and POCI-01-0145-FEDER-006890.
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.
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