IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Pricing and Marketing Rules with Brand Loyalty

Listed author(s):
  • Salvador Valdés


    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Many firms face a dynamic trade-off: if price is reduced, the firm attracts new customers who will yield profits in the future, but it also forgoes the opportunity to squeeze profits now from loyal customers. This paper identifies a rule that represents the optimal resolution of this trade-off, in terms of an intuitive modification to the static Lerner rule. We find that the "effective" price elasticity depends on the discount rate used by the firm, on the rate of depreciation of the clientele through exit from the stock of repeat purchasers, and on a weighted sum of the price elasticities of the flow of entries into the stock of repeat-purchasers and the flow of exits from the stock of repeat-purchasers. None of these factors enter the optimal pricing strategy for a firm facing a conventional demand function with instantaneous adjustment, i.e. where consumers are "fast switchers", rather than repeat-purchasers. We also find optimal rules for marketing investment and for quality of service, which are extensions of the Dorfman-Steiner conditions. The paper shows that our rules, with suitable modifications, are valid for many market structures, including monopolistic competition, pure monopoly and strong cartels, dominant firms and oligopolists that have full commitment ability. In the case of dominant firms and oligopolists that cannot commit to their strategy paths, these simple optimal pricing and marketing rules do not apply.

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.

File URL:
Download Restriction: no

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 210.

in new window

Date of creation: 2002
Handle: RePEc:ioe:doctra:210
Contact details of provider: Postal:
Avda. Vicuña Mackenna 4860, Macul, Santiago

Phone: (562) 354-4303
Fax: (562) 553-1664
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:210. 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: (Jaime Casassus)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.