Customer Information Sharing Among Rival Firms

Abstract

The recent rapid growth of the Internet as a medium of communication and commerce, combined with the development of sophisticated software tools, are to a large extent responsible for producing a new kind of information: databases with detailed records about consumers' preferences. These databases have become part of a Þrm's assets, and as such they can be sold to competitors. This possibility has raised numerous concerns from consumer privacy advocates and regulators, who have entered into a heated debate with business groups and industry associations about whether the practice of customer information sharing should be banned, regulated, or left unchecked. This paper investigates the incentives of rival Þrms to share their customer-speciÞc information and evaluates the welfare implications if such exchanges are banned, in the context of a perfect price discrimination model.

Targeted pricing and customer data sharing among rivals

“…Let X and T be the two sets containing information on brand 1 0 We follow Liu and Serfes (2006) and use two tie-breaking rules. Assume that both …rms o¤er equal utilities.…”

Investment in customer recognition and information exchange

“…Liu and Serfes (2006) study a two-period model, where firms can engage in perfect price discrimination in the second period. They demonstrate that the firms' incentives to sell customer-specific information to each other depend on the distribution of the inherited customer bases.…”

Joint Customer Data Acquisition and Sharing Among Rivals

“…In contrast to the results of Liu and Serfes is Chen et al (2001), who show that …rms engage in the sharing of customer data only when market shares are not too asymmetric and the level of customer targetability is low. Liu and Serfes (2006) as well as Chen et al (2001) argue that it is the market shares of …rms that drives information sharing. In our setup it is the willingness of consumers to switch brands together with the portfolio of data that …rms hold, which determines whether or not information sharing takes place.…”