Competitive Price Targeting with Smartphone Coupons

46 Pages Posted: 14 Mar 2016

See all articles by Jean-Pierre Dubé

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Zheng Fang

Sichuan University - Business School

Nathan M. Fong

Temple University - Department of Marketing and Supply Chain Management; MIT Sloan School of Management

Xueming Luo

Temple University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2016

Abstract

We conduct a large-scale field experiment to study competitive price discrimination in a duopoly market with two rival movie theaters. The firms use mobile targeting to offer different prices based on location and past consumer activity. A novel feature of our experiment is that we test a range of relative ticket prices from both firms to trace out their respective best-response functions and to assess equilibrium outcomes. We use our experimentally-generated data to estimate a demand model that can be used to predict the consumer choices and corresponding firm best-responses at price levels not included in the test. We find an empirically large return on investment when a single firm unilaterally targets its prices based on the geographic location or historical visit behavior of a mobile customer. However, these returns can be mitigated by competitive interactions whereby both firms simultaneously engage in targeting. In practice, firms typically test only their own prices and do not consider the competitive response of a rival. In our study of movie theaters, competition enhances the returns to behavioral targeting but reduces the returns to geo-targeting. Under geographic targeting, each theater offers a discount in the other rival's local market, toughening price competition. In contrast, under behavioral targeting, the strategic complementarity of prices coupled with the symmetric incentives of the two theaters to raise prices charged to high-recency customers softens price competition. Thus, managers need to consider how competition moderates the profitability of price targeting. Moreover, field experiments that hold the competitor's actions fixed may generate misleading conclusions if the permanent implementation of a tested action would likely elicit a competitive response.

Suggested Citation

Dube, Jean-Pierre H. and Fang, Zheng and Fong, Nathan M. and Luo, Xueming, Competitive Price Targeting with Smartphone Coupons (March 2016). NBER Working Paper No. w22067. Available at SSRN: https://ssrn.com/abstract=2747188

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zheng Fang

Sichuan University - Business School ( email )

China

Nathan M. Fong

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://sites.google.com/site/nmfong/

MIT Sloan School of Management ( email )

Cambridge, MA
United States

Xueming Luo

Temple University ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

HOME PAGE: http://www.fox.temple.edu/mcm_people/xueming-luo/

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