Consumer Recongnition in Durable , Diferentiated Goods Markets with Technological Innovation

In some markets, firms can price-discriminate across consumers based on their purchasing history. In particular, when firms introduce an innovation to their product, they may offer an upgrade price to their former customers, and a switching price to poach some consumers from their rivals. In this paper I examine the existence of an equilibrium with consumer poaching in a durable-good market characterized by product differentiation and technological innovation. When a new good is expected to be introduced next period, I found that there would be a poaching equilibrium in that period when the market was completely covered before the insertion of the innovation. If some consumers decide to postpone their purchase and wait for the innovation, a poaching policy (with an upgrade price and a switching price) cannot be sustained as an equilibrium if at the same time firms want to discriminate between former and new customers. Moreover, if the agents are very patient, there is no equilibrium with a switching price; instead, either firms reduce their price in the previous period and cover all the market, or they abstain from implementing any form of behavior-based price discrimination. JEL Classification: D43, L11, L13 ∗Preliminary version. Please do not cite, as it is currently under revision. A more updated version can be found at http://home.nyu.edu/~gmp210 †E-mail: [email protected] ‡I would like to thank Alessandro Lizzeri and Janusz Ordover for their invaluable advice and infinite patience, as well as Shachar Kariv, Onur Ozgur and Ryuichi Tanaka for their constant encourangement and useful discussions. Of course, all errors are mine.