Dynamic Competition with Customer Recognition

J. Miguel Villas-Boas

RAND Journal of Economics, 1999, vol. 30, issue 4, 604-631

Abstract: In many markets firms have some information about their customers resulting from the consumers' past choice behavior. Given this information, firms can better target their market practice with respect to their customers. This article considers such a situation in a duopoly with infinitely lived firms and overlapping generations of customers. A new customer may either have bought the competing product in the previous period or be new to the market. I identify three effects: (i) Firms lower prices to attract the competitor¹s previous customers. (ii) Greater consumer patience intensifies competition. (iii) Greater firm patience softens the competitive interaction. With patient firms and consumers, prices are lower than when there is no customer recognition.

Date: 1999
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