Markus Reisinger

Abstract

This paper examines the effects of personalized pricing on optimal brand distribution. We explore whether a brand manufacturer wants to sell only through its own retail outlet (mono distribution) or prefers dual distribution by also selling through an independent retailer. We show that personalized pricing allows for higher rent extraction but also leads to fiercer intra-brand competition than uniform pricing. Due to the latter effect, a brand manufacturer prefers mono distribution in many circumstances, although the retailer broadens the demand of the manufacturer's product. By contrast, with uniform pricing, selling through both channels is optimal. This result holds for wholesale contracts consisting of two-part tariffs and for linear wholesale prices. We also show that the manufacturer often obtains the largest profits in an asymmetric pricing regime, in which only the retailer charges personalized prices.