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The Curse of Knowledge: Having Access to Customer Information Can Reduce Monopoly Profit

Author

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  • Didier Laussel
  • Ngo Van Long
  • Joana Resende
Abstract
We demonstrate the "curse of knowledge" when a monopolist can recognize different consumer groups through their purchase histories which are influenced by its dynamic pricing policies. Under the Markov-perfect equilibrium, after each commitment period, the firm offers a new introductory price so as to attract new customers. More and more market segments are added gradually. Eventually, the whole market is covered. Shortening the commitment period will result in a fall in profit. In contrast, a full-commitment monopolist would choose to stick to uniform pricing, achieving higher profit. Hence, the firm is better off by refraining from collecting customer information. Nous démontrons la "malédiction du savoir" lorsqu'un monopoleur peut reconnaître différents groupes de consommateurs à travers leurs historiques d'achat influencés par sa politique de prix dynamique. Sous l'équilibre de Markov-parfait, l'entreprise propose, après chaque période d'engagement, un nouveau prix de lancement afin d'attirer de nouveaux clients. De plus en plus de segments de marché sont ajoutés progressivement. Finalement, tout le marché est couvert. La réduction de la période d'engagement entraînera une baisse des bénéfices. En revanche, un monopoleur pleinement engagé choisirait de s'en tenir à un prix unique, réalisant des bénéfices plus élevés. Par conséquent, le monopoleur gagnerait plus de profit s’il pouvait s'engager de ne pas collecter des informations sur les clients.

Suggested Citation

  • Didier Laussel & Ngo Van Long & Joana Resende, 2019. "The Curse of Knowledge: Having Access to Customer Information Can Reduce Monopoly Profit," CIRANO Working Papers 2019s-04, CIRANO.
    • Handle: RePEc:cir:cirwor:2019s-04
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    2. Didier Laussel, 2023. "Do firms always benefit from the presence of active customers?," Post-Print hal-03777069, HAL.
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    4. Li, Jianpei & Zhang, Wanzhu, 2022. "Behavior-based pricing and signaling of product quality," MPRA Paper 120263, University Library of Munich, Germany, revised 03 Jan 2023.

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    More about this item

    Keywords

    Coasian Dynamics; Information Collection; Monopoly; Regulatory Policies; La dynamique coasienne; La collecte d’infomation; Monopole; Politiques réglementaires;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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