Competing with Loyalty Discounts

48 Pages Posted: 16 Feb 2004

See all articles by Patrick Greenlee

Patrick Greenlee

U.S. Department of Justice - Antitrust Division

David S. Reitman

Government of the United States of America - Antitrust Division, Competition and Policy Section

Date Written: February 4, 2005

Abstract

Loyalty discounts, offered to customers that meet purchase thresholds, can shift share from rival firms. In a differentiated product duopoly, only one firm employs a program that customers adopt in equilibrium. Whenever consumers strongly prefer the product of said firm, such discounts increase producer surplus. When a firm requires customers to meet thresholds in multiple rivalrous markets, the loyalty discount and consumer surplus may fall. Finally, when a branded product monopolist faces competition for an unrelated generic product, the monopolist raises the branded spot price, and offers a discount to customers that purchase generic product only from the monopolist.

Keywords: Loyalty discounts, fidelity programs, exclusive dealing, nonlinear pricing

JEL Classification: L42, L13, D43

Suggested Citation

Greenlee, Patrick and Reitman, David S., Competing with Loyalty Discounts (February 4, 2005). Available at SSRN: https://ssrn.com/abstract=502303 or http://dx.doi.org/10.2139/ssrn.502303

Patrick Greenlee (Contact Author)

U.S. Department of Justice - Antitrust Division ( email )

600 E Street NW
Suite 10,000
Washington, DC 20530
United States

David S. Reitman

Government of the United States of America - Antitrust Division, Competition and Policy Section ( email )

600 E Street NW
Suite 10000
Washington, DC 20530
United States
202-307-3714 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,054
Abstract Views
4,684
rank
26,065
PlumX Metrics