Loyalty programs may limit competition, and they could be pushing prices up for everyone

By Alexandru Nichifor, Associate Professor, Faculty of Business and Economics, University of Melbourne, The University of Melbourne
Scott Duke Kominers, Sarofim-Rock Professor of Business Administration, Harvard University

Loyalty programs enable firms to offer significantly lower prices to some of their customers. You’d think this would encourage strong competition.

But that isn’t always what actually happens. New research shows that paradoxically, by changing the way companies target customers, loyalty programs can sometimes reduce price competition. The research also points to solutions.

A win-win proposition?

Joining a loyalty program is supposed to be a win-win. You – the customer – get…

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