Are loyalty-rewarding pricing schemes anti-competitive?
Many economists and policy analysts seem to believe that loyaltyrewarding pricing schemes, like frequent flyer programs, tend to reinforce firm's market power and hence are detrimental to consumer welfare. The existing academic literature has supported this view to some extent. In contrast, we argue that these programs are business stealing devices that enhance competition, in the sense of generating lower average transaction prices and higher consumer surplus. This result is robust to alternative specifications of the firms' commitment power and demand structures, and is derived in a theoretical model whose main predictions are compatible with the sparse empirical evidence.
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- Caminal, Ramon & Claici, Adina, 2005.
"Are loyalty-rewarding pricing schemes anti-competitive?,"
CEPR Discussion Papers
5353, C.E.P.R. Discussion Papers.
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- Ramón Caminal & Adina Claici, 2005. "Are loyalty-rewarding pricing schemes anti-competitive?," Working Papers 228, Barcelona Graduate School of Economics.
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- J. Miguel Villas-Boas, 2006. "Dynamic Competition with Experience Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 37-66, 03.
- Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
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