Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76746
Authors: 
Ackermann, Philipp
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers, Department of Economics, Universität Bern 10-02
Abstract: 
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.
Subjects: 
switching costs
customer reward programs
loyalty discounts
repeat purchases
coupons
mixed equilibria
JEL: 
C72
D43
L13
L14
L41
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.