Abstract:Recent literature on behavior-based pricing discrimination (BBPD) has a common assumption that consumers always have a constant basic utility in a two-period dynamic game model. Obviously,this assumption is far away from the reality that consumers usually have different experiences and update their utility according to the products they purchase. The paper,assuming consumers having different experiences or utilities,studies the effect of customer recognition and BBPD in a three-period game model for a duopoly with a discrete value distribution. The role of consumers’ex ante valuation uncertainty is investigated in a dynamic price competition through the comparison of BBPD with uniform pricing (UP); the firms’optimal pricing policy is also analyzed under the two different pricing strategies: BBPD and UP. The results are that: the firms always reward new customers and punish old customers; BBPD frequently increases each firm’s total profits, but decreases the social welfare; BBPD always drives more consumer switching in both period 2 and period 3,relative to the UP. Prisoner's dilemma occurs when the duopoly can choose BBPD and UP simultaneously.