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Dynamic pricing: when to entice brand switching and when to reward consumer loyalty

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Author Info

  • Yongmin Chen
  • Jason Pearcy

Abstract

This article develops a theory of dynamic pricing in which firms may offer separate prices to different consumers based on their past purchases. Brand preferences over two periods are described by a copula admitting various degrees of positive dependence. When commitment to future prices is infeasible, each firm offers lower prices to its rival's customers. When firms can commit to future prices, consumer loyalty is rewarded if preference dependence is low, but enticing brand switching occurs if preference dependence is high. Our theory provides a unified treatment of the two pricing policies and sheds light on observed practices across industries. Copyright (c) 2010, RAND..

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 4 ()
Pages: 674-685

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Handle: RePEc:bla:randje:v:41:y:2010:i:4:p:674-685

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Cited by:
  1. Rosa-Branca Esteves, 2014. "Behaviour-Based Price Discrimination with Retention Offers," NIPE Working Papers 09/2014, NIPE - Universidade do Minho.
  2. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.
  3. Ramon Caminal, 2009. "The design and efficiency of loyalty rewards," Working Papers 408, Barcelona Graduate School of Economics.
  4. Ramon Caminal, 2012. "The Design and Efficiency of Loyalty Rewards," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 339-371, 06.
  5. repec:hal:wpaper:halshs-00622291 is not listed on IDEAS
  6. Liu, Qihong & Shuai, Jie, 2013. "Multi-dimensional price discrimination," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 417-428.
  7. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
  8. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
  9. Luis Cabral, 2012. "Switching Costs and Equilibrium Prices," Working Papers 12-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
  11. Rosa Branca Esteves & Joana Resende, 2013. "Competitive Targeted Advertising with Price Discrimination," NIPE Working Papers 07/2013, NIPE - Universidade do Minho.

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