Coalition loyalty programs and consumer search

Abstract:

We provide a novel interpretation for coalition loyalty programs (CLPs) in a costly search environment for consumers. A firm in one market can generate a prominent position for another firm in an unrelated market through a CLP by offering a reward to consumers conditionally on buying in both firms. When consumers buy from the firm in the first market, they will optimally start searching the associated firm in the unrelated market due to the possibility of obtaining a reward. We build a theoretical model to study the effects of such a coalition on prices, firms’ profits, and consumer welfare.

En coautoría con Xavier Lambin.