Price dispersion in the phenomenon of big data discriminatory pricing (BDDP)

Abstract

Theoretically, competition between firms producing homogeneous products would lead to price convergence. However, there is persistent price dispersion in real markets for homogeneous products. Many scholars have built models from different perspectives to explain the existence of price dispersion in retail markets. Moreover, this price dispersion still exists after entering the Internet era. My paper builds a model based on the phenomenon of many monopolies charging different prices to consumers through big data discriminatory pricing (BDDP) since entering the Internet Big Data era to find price dispersion equilibrium from the perspective of firms. My model adds some variables to a Varian-style model in which consumers are divided into three types and firms charge different prices to maximise profits. Moreover, my study simplifies the actual market situation and is theoretically ideal. It does not perform a multi-stage analysis of consumer switching costs and consideration of consumers entering and leaving the market. However, my paper provides some ideas for subsequent research on price dispersion in Internet monopolies and provides a direction for multi-stage research.