Loyalty Rewards and Monopoly Pricing

Ackermann, Philipp (February 2010). Loyalty Rewards and Monopoly Pricing (Discussion Papers 10-02). Bern: Department of Economics

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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.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Ackermann, Philipp

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

08 Oct 2020 11:13

Last Modified:

08 Oct 2020 11:13

JEL Classification:

C72, D43, L13, L14, L41

BORIS DOI:

10.7892/boris.145722

URI:

https://boris.unibe.ch/id/eprint/145722

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