Abstract

E-commerce brings firms new personalisation technologies enabling them to exploit information about individual consumers in order to tailor both products and prices to individual requirements. Thus firms can engage in two new competitive strategies -- first degree price discrimination and mass customisation. In this paper we develop a simple framework within which to understand firms' incentives to adopt each of these strategies in a competitive environment. In particular we examine the interaction between the two decisions. We show: 1. The profits of the firm that uses first degree price discrimination technology are independent of the pricing strategy used by its competitors. 2. A firm which uses first-degree price discrimination technology is strictly better off if it also mass customises. 3. The greater the degree of mass customisation chosen by firms the more likely they are to choose to first-degree price discriminate. 4. Firms are often locked-in a prisoners' dilemma situation, where they would be better off not adopting any of the two technologies, but in equilibrium they do adopt both technologies and make lower profits. Acknowledgements Both authors thank the financial support of the ESRC grant no. R000222642. 1.

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