Market Power and Redeemable Loyalty Token Design

Kenneth Rogoff, Zhiheng He and Yang You

No 33201, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Digitalization led to a rapid expansion of loyalty tokens typically bundled as part of product price. An open question is whether issuers are incentivized to make loyalty tokens tradable, raising regulation issues for monetary and banking authorities. This paper argues that an issuer earns more revenue by making tokens non-tradable even though consumers would pay a higher price for tradable tokens. We further show that an issuer with stronger market power makes its revenue more token-dependent. We test the model’s predictions with data on airline mileage and hotel reward programs and document consistent empirical results that align with our theory.

JEL-codes: G12 G32 G51 M20 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-com and nep-reg
Note: ME
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