Quality and Price Personalization under Customer Recognition

As a result, it upgrades its quality o¤er to the consumers who have bought the good for the rst time in the previous period but it also increases the corresponding price, maximizing the consumers surplus (which it fully extracts through the implementation of rst-degree price discrimination). [...] Consequently, the monopolist only needs to distort downward the quality o¤ered to the successive rungs of the customers who buy the good for the rst time.4 4If we were to assume the absence of tracking devices and big data collection, 3 Our main focus is on the case where the monopolist is unable to commit to future sales decisions. [...] Accordingly, concerning market expansion when the (exogenously speci ed) length of the commitment period tends to zero, there are two opposite e¤ects at work: (i) each period is shorter, implying that the rate of arrival of a new cohort of rst-time customers is faster, (ii) in response to the reduced length of the commitment period, the rm tends to reduce the size of each new cohort in order to [...] Contrary to the rm, consumers as a whole are hurt by the shortening of the contractual commitment period (as it is translated into a reduction in the length of the time period that the rm needs in order to get a fully accurate pro le for its new consumers). [...] Z ! (n+j) 1 ( (n)) =. j qn+j(s) ds = Un( n+1); (24) j=1 (n+j+1) r where f (:)g1n is the path of the state variable induced by the strate- gic behavior of the monopolist from period n, when the state variable takes the value (n), and where qn+j(s) = q n+j (sj (n+ j)), i.e., the quality schedule that the consumers expect to be o¤ered in period n+ j is the same as the schedule that th