Identification of Dynamic Models of Rewards Programme

18 Pages Posted: 20 Aug 2018

See all articles by Andrew T. Ching

Andrew T. Ching

Johns Hopkins University - Carey Business School

Masakazu Ishihara

New York University (NYU) - Leonard N. Stern School of Business

Date Written: September 2018

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.

Suggested Citation

Ching, Andrew T. and Ishihara, Masakazu, Identification of Dynamic Models of Rewards Programme (September 2018). The Japanese Economic Review, Vol. 69, Issue 3, pp. 306-323, 2018, Available at SSRN: https://ssrn.com/abstract=3233245 or http://dx.doi.org/10.1111/jere.12188

Andrew T. Ching (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Masakazu Ishihara

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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