A two-stage price competition model based on customer loyalty. (Chinese. English summary) Zbl 1340.91075

Zhu, Yaqin; Xu, Chuanyong; Liang, Liang

J. Syst. Eng. 30, No. 1, 44-54 (2015).

Summary: Concerning the case with some loyal customers, this paper develops a two-stage duopoly pricing model to analyze the impact of customer loyalty on the pricing decision of competing firms. Customer loyalty is built on historical transactions. A loyal customer of one firm incurs switching cost when he shifts to another firm. It is shown that if customer loyalty varies within a certain range, the equilibrium price of each firm in the second period is higher than that in the first period. As customer loyalty increases, the price gap between the two firms increases in the first period but decreases in the second one. The firm with higher service quality always has pricing and market advantages in the two stages, which renders it a distinct advantageous position when the customers are more sensitive to quality.

MSC:

91B54	Special types of economic markets (including Cournot, Bertrand)
91A25	Dynamic games

Keywords:

customer loyalty; dynamic game; two-stage model; price competition