Customer Information Sharing: Strategic Incentives and New Implications

We study oligopolistic firms' incentives to share customer informationabout past purchase history in a situation where firms are uncertainabout whether a particular consumer considers the product offeringscomplements or substitutes. By addressing this new type ofbehavior-based price discrimination, we show that both the incentive toshare customer information and its effects on consumers depend cruciallyon the relative magnitudes of the prices that would prevail in thecomplementary and substitute markets if consumers were fully segmentedaccording to their preferences. This paper has important implicationsfor merger analysis when the primary motive for merger is theacquisition of another firm's customer lists. We also find that theinformational regime in which firms reside can have an influence uponthe choice of product differentiation. Additionally, our analysissuggests a new role of middlemen as information aggregators.