Loyalty Rewards and Monopoly Pricing
This article examines the impact of customer reward programs on the competitive outcome in duopolistic markets. We argue that loyalty discounts for repeat customers constitute a commitment device beneficial to suppliers rather than customers. Analyzing a two-period Bertrand model we show that the use of loyalty discounts makes it possible for duopolists to attain the fully collusive outcome in both periods. By offering generous loyalty discounts, the firms can credibly commit to refrain from second period poaching given that they attract enough customers in period one. Loyalty discounts invite firms to collude in the first period.
|Date of creation:||Feb 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Schanzeneckstr. 1, PF 8573, CH-3001 Bern|
Phone: 0041 31 631 45 06
Fax: 41 31 631 37 83
Web page: http://www.vwi.unibe.ch/content/publikationen/index_eng.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ube:dpvwib:dp1002. 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: (Silvia Glusstein-Gerber)The email address of this maintainer does not seem to be valid anymore. Please ask Silvia Glusstein-Gerber to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.