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Is there a good survey that covers the theory and empirics of loyalty programs? I am thinking of programs like Amazon Prime, Starbucks, and airlines miles/points. What are the mechanisms? Are they effective in a causal sense?

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1 Answer 1

A relevant literature is that on the economics of switching costs. There are many papers in this literature and a number of surveys, but I would recommend this paper by Klemperer for a concise combination of survey and theory. A more comprehensive survey can be found in this handbook chapter by Farrell and Klemperer.

The basic idea is that loyalty programmes (among other things) create a cost for consumers who contemplate switching to another supplier. This literature studies how such costs influence strategic behaviour and competition between firms.

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