Working paper

Personalized Pricing and Brand Distribution

Bruno Jullien, Markus Reisinger, and Patrick Rey

Abstract

This paper examines the effects of personalized pricing on brand distribution. We explore whether a brand manufacturer prefers to sell through its own retail outlet only (mono distribution) or through an independent retailer as well (dual distribution). Personalized pricing allows for higher rent extraction but also leads to more fierce intra-brand competition than does uniform pricing. Due to the latter effect, a brand manufacturer may prefer mono distribution even if the retailer broadens the demand of the manufacturer’s product. By contrast, with uniform pricing, selling through both channels is always optimal. This result holds for wholesale contracts consisting of two-part tariffs as well as for linear wholesale tariffs. We also show that the manufacturer may obtain its largest profit in a hybrid pricing regime, in which only the retailer charges personalized prices. Keywords: personalized pricing, distribution channels, dual distribution, vertical contracting, downstream competition.

Keywords

personalized pricing; distribution channels; dual distribution; vertical contracting; downstream competition.;

Reference

Bruno Jullien, Markus Reisinger, and Patrick Rey, Personalized Pricing and Brand Distribution, TSE Working Paper, n. 19-995, March 2019.

See also

Published in

TSE Working Paper, n. 19-995, March 2019