Abstract
“Frequent-buyer” rewards programmes are commonly used by companies as a marketing tool to compete for market share. They provide a unique environment for studying consumers’ forward-looking behaviour. The consumer's problem on accumulating reward points can be formulated as a stationary infinite horizon discrete choice dynamic programming model. We show that the parameters of this model, including the discount factor, are well-identified. In particular, it is possible to identify state-dependent discount factors (i.e. discount factors can vary with the number of reward points). We discuss how this identification result is related to the goal-gradient hypothesis studied in the consumer psychology literature.
Original language | English (US) |
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Pages (from-to) | 306-323 |
Number of pages | 18 |
Journal | Japanese Economic Review |
Volume | 69 |
Issue number | 3 |
DOIs | |
State | Published - Sep 1 2018 |
Externally published | Yes |
ASJC Scopus subject areas
- Economics and Econometrics