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Impact of customer loyalty and differing firm costs on price discrimination in an infinite horizon setting

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  • Tulabandhula, Theja
  • Ouksel, Aris M.
  • Nguyen, Son The

Abstract

We study how firm-specific loyalty behavior of customers and differing costs to produce undifferentiated products by firms can influence market outcomes in an infinite-horizon game-theoretic model. We comprehensively characterize the joint effects of loyalty and product cost difference on prices, market shares, and profits. Our analysis and numerical simulations provide insights into how firms can price, survive even with higher product costs, control costs, and/or increase customer loyalty to change their market position.

Suggested Citation

  • Tulabandhula, Theja & Ouksel, Aris M. & Nguyen, Son The, 2023. "Impact of customer loyalty and differing firm costs on price discrimination in an infinite horizon setting," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 344-377.
    • Handle: RePEc:eee:quaeco:v:88:y:2023:i:c:p:344-377
    DOI: 10.1016/j.qref.2023.02.008
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    More about this item

    Keywords

    Customer loyalty; Product cost asymmetry; Price discrimination; Markov equilibrium;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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