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Strategic loyalty reward in dynamic price Discrimination


  • Bernard Caillaud

    (PSE - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris)

  • Romain De Nijs

    (PSE - Paris School of Economics, CREST - Centre de Recherche en Économie et Statistique - INSEE - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)


This paper proposes a dynamic model of duopolistic competition under behaviorbased price discrimination with the following property: in equilibrium, a firm may reward its previous customers although long term contracts are not enforceable. A firm can offer a lower price to its previous customers than to its new customers as a strategic means to hamper its rival to gather precise information on the young generation of customers for subsequent profitable behavior-based pricing. The result holds both with myopic and forward-looking, impatient enough consumers.

Suggested Citation

  • Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00622291
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    References listed on IDEAS

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    7. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
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    10. Rosa Branca Esteves, 2009. "A Survey on the Economics of Behaviour-Based Price Discrimination," NIPE Working Papers 5/2009, NIPE - Universidade do Minho.
    11. Chen, Yuxin & Zhang, Z. John, 2009. "Dynamic targeted pricing with strategic consumers," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 43-50, January.
    12. Taylor, Curtis R, 2003. " Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 223-246, Summer.
    13. Rosa Branca Esteves, 2009. "CUSTOMER POACHING AND ADVERTISING -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    14. Juanjuan Zhang, 2011. "The Perils of Behavior-Based Personalization," Marketing Science, INFORMS, vol. 30(1), pages 170-186, 01-02.
    15. Yongmin Chen, 2008. "DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 729-751, December.
    16. Thomas Gehrig & Rune Stenbacka, 2004. "Differentiation-Induced Switching Costs and Poaching," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 635-655, December.
    17. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    18. 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.
    19. 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.
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    Cited by:

    1. Romain De Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    2. repec:hal:wpaper:hal-01226250 is not listed on IDEAS
    3. repec:eee:ejores:v:262:y:2017:i:2:p:563-574 is not listed on IDEAS
    4. De Nijs, Romain & Rhodes, Andrew, 2013. "Behavior-based pricing with experience goods," Economics Letters, Elsevier, vol. 118(1), pages 155-158.
    5. Brokesova, Zuzana & Deck, Cary & Peliova, Jana, 2014. "Experimenting with purchase history based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 229-237.
    6. Zuzana Brokesova & Cary Deck & Jana Peliova, 2014. "Experimenting with Behavior Based Pricing," Working Papers 14-12, Chapman University, Economic Science Institute.
    7. repec:eee:ejores:v:266:y:2018:i:3:p:1044-1061 is not listed on IDEAS
    8. Elias Carroni, 2015. "Behaviour Based Price Discrimination with Cross-Group Externalities," Working Papers 1502, University of Namur, Department of Economics.
    9. Arieh Gavious & Ella Segev, 2017. "Price Discrimination Based on Buyers’ Purchase History," Dynamic Games and Applications, Springer, vol. 7(2), pages 229-265, June.
    10. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    11. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9181-1 is not listed on IDEAS

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    Price discrimination; Dynamic pricing; Loyalty reward;

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