Preference-Based Discrimination and Profit : On the Profitability of Discriminatory Spatial Policy

In many markets, firms are able to conduct discriminatory strategies based on whether a customer prefers a competitors' product or their own. This article considers the impact of such discrimination in duopoly models in which firms set prices and conduct precontract-customization efforts for some customers. We identify two effects: (1) The ability to conduct preference-based discrimination increases equilibrium profit, as long as precontract customization is at least modestly important in competitive dynamics; and (2) The ability to conduct preference-based discrimination enhances social welfare if any precontract customization is done