Are loyalty-rewarding pricing schemes anti-competitive?

Ramon Caminal and Adina Claici

No 5353, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Many economists and policy analysts seem to believe that loyalty-rewarding pricing schemes, like frequent flyer programs, tend to reinforce firms' market power and hence are detrimental to consumer welfare. The existing academic literature has supported this view to some extent. In contrast, we argue that these programs are business stealing devices that enhance competition, in the sense of generating lower average transaction prices and higher consumer surplus. This result is robust to alternative specifications of the firms' commitment power and demand structures, and is derived in a theoretical model whose main predictions are compatible with the sparse empirical evidence.

Keywords: Repeat purchases; Switching costs; Price commitment; Coupons (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Are loyalty-rewarding pricing schemes anti-competitive? (2015)
Journal Article: Are loyalty-rewarding pricing schemes anti-competitive? (2007)
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