Consumer Loyalty Programs and Retail Prices: Evidence from Gasoline Markets

Past research shows that loyalty programs can generate switching costs for consumers and increase their purchase frequency. Theoretical work suggests that if switching costs are significant, firms should charge lower prices in the early periods of a program to boost market share, and increase prices in later periods, to take advantage of the ``lock-in'' effect. However, it is not clear whether these costs soften or exacerbate price competition....