Strategic loyalty reward in dynamic price Discrimination

Bernard Caillaud (1, 2) , Romain de Nijs (1, 3)

1 PSE - Paris School of Economics
2 PSE - Paris-Jourdan Sciences Economiques
3 CREST - Centre de Recherche en Économie et Statistique

This paper proposes a dynamic model of duopolistic competition under behaviorbased price discrimination with the following property: in equilibrium, a firm may reward its previous customers although long term contracts are not enforceable. A firm can offer a lower price to its previous customers than to its new customers as a strategic means to hamper its rival to gather precise information on the young generation of customers for subsequent profitable behavior-based pricing. The result holds both with myopic and forward-looking, impatient enough consumers.

Mots clés: Price discrimination; Dynamic pricing; Loyalty reward

Domaines: Economies et finances

Bernard Caillaud, Romain de Nijs. Strategic loyalty reward in dynamic price Discrimination. 2011. ⟨halshs-00622291⟩