Behavior-Based Pricing, Production Efficiency, and Quality Differentiation

• Published in: Management science Vol. 63; no. 7; pp. 2365 - 2376
• Main Author: Jing, Bing
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.07.2017; Institute for Operations Research and the Management Sciences
• Subjects: behavior-based pricing; Companies; Consumers; Differentiation; Discrimination; Duopoly; Efficiency; Endogenous; Management research; Methods; price discrimination; Prices; Pricing; Product differentiation; Product quality; production efficiency; Production management; Profits; Psychological aspects; quality; Social welfare; vertical differentiation
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.2016.2463

In a two-period vertical duopoly, we examine how behavior-based price discrimination (BPD) affects the firms’ endogenous quality differentiation and profits. The firms’ relative production efficiency , defined as the ratio between their unit cost difference and quality difference, plays a crucial ro...