Reward Programs and Entry Deterrence
This paper seeks to endogenize consumer switching costs by considering simple reward programs in the form of a price discount on future purchases for current consumers to a firm. In a two period model with a more cost efficient potential entrant, we show that for sufficiently low entry costs, the introduction of a reward program by an incumbent is never optimal. For intermediate values of the entry cost, there exists a bounded interval of rewards under which entry can be successfully deterred. Nevertheless, the desirability for the incumbent to preclude entry is solely contingent on the relative cost efficiency of the entrant.
|Date of creation:||Aug 2004|
|Date of revision:||Jun 2005|
|Contact details of provider:|| Postal: |
Phone: (905) 688-5550 3325
Fax: (905) 988-9388
Web page: http://www.brocku.ca/economics/Email:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:brk:wpaper:0501. 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: (Jean-Francois Lamarche)
If references are entirely missing, you can add them using this form.