Title: The Dynamic Effect of Price Discrimination in Business Market
Abstract: First-degree price discrimination is a prevalent practice in markets where transactions are private and customers have imperfect information about the prices paid by other customers. As customers gain experience with the product, they may become aware where the prices they paid fall in the overall distribution of prices, triggering changes in their purchasing behavior. Using a dynamic model, we show that customers change their purchasing behavior over time. By combining an autoregressive process with a hidden-Markov model, we disentangle pricing dynamics from non-price factors that occur as customers become more experienced with a product. We show that price discrimination can shift customers to a more price-sensitive state. These effects are observed in terms of quantity purchased and inter-purchase time. We identify salesperson and product portfolio factors that affect customers' reactions to price discrimination. Some salespeople can sell at higher prices without an effect on quantity purchased, or increased price sensitivity. We find evidence of a relationship between a salesperson charging more dispersed prices and a customer becoming more price sensitive over time. Product portfolio plays an important role: customers who purchase a broader product range show lower price sensitivity. Cross-product spillover e ects are signicant: a high price paid for one product leads to lower quantity of purchase and longer inter-purchase time for other prod- ucts. Together these results show that pricing in one product has consequences for customer management across all products. We discuss the implications of these findings for customer protability, salesforce management and price rigidity.
Shantanu is Dave and Jeanne Tappan Chair in Marketing, and he is an expert on strategic marketing, especially in high technology markets. He also studies how firms use distribution, partnerships, and value pricing to build competitive advantage. His research has been published in Journal of Marketing, Journal of Marketing Research, Marketing Science, Quarterly Journal of Economics, Journal of Law and Economics, Journal of Law, Economics and Organization, Management Science, and Strategic Management Journal. He serves on the editorial board of the Journal of Marketing Research and Marketing Science.
Find his website here: http://www.marshall.usc.edu/faculty/directory/sdutta
Free lunch will be provided.