The Design and Efficiency of Loyalty Rewards
The goal of this paper is to reexamine the optimal design and efficiency of loyalty rewards in markets for final consumption goods. While the literature has emphasized the role of loyalty rewards as endogenous switching costs (which distort the efficient allocation of consumers), in this paper I analyze the ability of alternative designs to foster consumer participation and increase total surplus. First, the efficiency of loyalty rewards depend on their specific design. A commitment to the price of repeat purchases can involve substantial efficiency gains by reducing price-cost margins. However, discount policies imply higher future prices and are likely to reduce total surplus. Second, firms may prefer to set up inefficient rewards (discounts), especially in those circumstances where a commitment to the price of repeat purchases triggers Coasian dynamics.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 21 (2012)
Issue (Month): 2 (06)
|Contact details of provider:|| Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/|
|Order Information:||Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bulkley, George, 1992. "The role of loyalty discounts when consumers are uncertain of the value of repeat purchases," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 91-101, March.
- Yongmin Chen & Jason Pearcy, 2010. "Dynamic pricing: when to entice brand switching and when to reward consumer loyalty," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 674-685.
- Wesley Hartmann & V. Viard, 2008.
"Do frequency reward programs create switching costs? A dynamic structural analysis of demand in a reward program,"
Quantitative Marketing and Economics (QME),
Springer, vol. 6(2), pages 109-137, June.
- Hartmann, Wesley R. & Viard, V. Brian, 2007. "Do Frequency Reward Programs Create Switching Costs? A Dynamic Structural Analysis of Demand in a Reward Program," Research Papers 1941r, Stanford University, Graduate School of Business.
- Ramón Caminal & Adina Claici, 2005.
"Are loyalty-rewarding pricing schemes anti-competitive?,"
228, Barcelona Graduate School of Economics.
- Caminal, Ramon & Claici, Adina, 2007. "Are loyalty-rewarding pricing schemes anti-competitive?," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 657-674, August.
- Caminal, Ramon & Claici, Adina, 2005. "Are loyalty-rewarding pricing schemes anti-competitive?," CEPR Discussion Papers 5353, C.E.P.R. Discussion Papers.
- Mara Lederman, 2008. "Are Frequent-Flyer Programs a Cause of the "Hub Premium"?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 35-66, 03.
- Leonardo J. Basso & Matthew T. Clements & Thomas W. Ross, 2009. "Moral Hazard and Customer Loyalty Programs," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 101-123, February.
- Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
- Drew Fudenberg & Jean Tirole, 2000.
"Customer Poaching and Brand Switching,"
RAND Journal of Economics,
The RAND Corporation, vol. 31(4), pages 634-657, Winter.
- Drew Fudenberg & Jean Tirole, 1999. "Customer Poaching and Brand Switching," Harvard Institute of Economic Research Working Papers 1871, Harvard - Institute of Economic Research.
- Byung-Do Kim & Mengze Shi & Kannan Srinivasan, 2001. "Reward Programs and Tacit Collusion," Marketing Science, INFORMS, vol. 20(2), pages 99-120, June.
When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:21:y:2012:i:2:p:339-371. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.