The following is a list of current working papers.
Searching for Rewards
(with T. Tony Ke and Xu Zhu), revise and resubmit at Management Science
Loyalty programs are pervasive across numerous markets, offering members rewards based on their past purchases for future benefits. This study explores the dynamics of loyalty programs within a repeated ordered search framework, where consumers sequentially search for the optimal product across multiple firms over two periods. Our findings reveal that firms strategically use price discounts and rewards to influence consumer behaviors. Price discounts discourage further search in the current shopping period, while rewards encourage consumer loyalty by inducing prominence in subsequent visits. As search costs increase, firms tend to offer lower price discounts but higher rewards. This strategy increases industry profit but reduces consumer surplus. Compared with its absence, loyalty programs decrease both industry profit and consumer welfare, leading to a lose-lose outcome. Moreover, we demonstrate that when the market is heterogeneous, high-type firms, with larger networks, offer lower rewards but achieve higher second-period prices and greater consumer loyalty, contrasting with low-type firms that compensate with higher rewards for their smaller networks. This study offers new insights into the strategic use of loyalty programs and their impact on market competition. More…
Demand Externalities from Co-Location
(with B. Sen, K. Sudhir and N. Yang), revise and resubmit for 2nd round review at QME
We illustrate an approach to measure demand externalities from co-location by estimating household-level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of the gas stations, we find significant demand externalities; on average a household that buys gas has a 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competitions with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories). More…