Impact of Customer Loyalty and Differing Firm Costs on Price Discrimination in an Infinite Horizon Setting


We study how firm-specific loyalty behavior of customers and differing costs to produce undifferentiated products by firms can influence market outcomes in an infinite-horizon game-theoretic model. We comprehensively characterize the joint effects of loyalty and product cost difference on prices, market shares, and profits. Our analysis and numerical simulations provide insights into how firms can price, survive even with higher product costs, control costs, and/or increase customer loyalty to change their market position.

The Quarterly Review of Economics and Finance