Dynamic monopoly and consumers profiling accuracy

Using a Markov-perfect equilibrium model, we show that the use of customer data to practice intertemporal price discrimination will improve monopoly profit if and only information precision is higher than certain threshold level. This U-shaped relationship lends support popular view knowledge good it sufficiently refined. When accuracy can be achieved through costly investment, find investing in profiling profitable this allows reach high enough level precision. Consumers expected surplus being hump-shaped function accuracy, consumers have an incentive lobby for privacy protection legislation which raises cost monopoly's investment accuracy. However, should not dissuade firms collect some on customers' tastes, as absence consumers' actually detrimental consumers.