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  • 2021
  • Working Paper
  • HBS Working Paper Series

Dynamic Competition for Customer Memberships

By: Cristian Chica and Jorge Tamayo
  • Format:Print
  • | Language:English
  • | Pages:77
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Abstract

A competitive two-period membership (subscription) market is analyzed. Two symmetric firms charge a “membership” fee that allows consumers to buy products or services at a given unit price for both periods. Firms can choose between long- or short-term memberships. When firms employ long-term membership, they have incentives to prevent their old customers from being poached by competitors, and to price-discriminate with their membership fee and unit price regarding customer purchase behavior. In contrast, with short-term membership, they do not discriminate between new and old customers with their unit price but only with their membership fees. Overall, the number of consumers poached is smaller with long-term memberships, but the equilibrium profits are higher when firms offer short-term memberships. Moreover, short-term membership is a Nash equilibrium.

Keywords

Competitive Price Discrimination; Membership; Dynamic Competition; Customers; Markets; Competition

Citation

Chica, Cristian, and Jorge Tamayo. "Dynamic Competition for Customer Memberships." Harvard Business School Working Paper, No. 21-091, March 2021. (R&R Journal of Economics & Management Strategy.)
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About The Author

Jorge Tamayo

Strategy
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  • Human-Computer Interactions in Demand Forecasting and Labor Scheduling Decisions By: Caleb Kwon, Ananth Raman and Jorge Tamayo
  • How Do You Compete and Cooperate? Understanding Strategic Interactions By: Jorge Tamayo
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