Points mechanisms and rewards programs
- Publication Type:
- Journal Article
- Journal of Economics and Management Strategy, 2018
- Issue Date:
Copyright Clearance Process
- Recently Added
- In Progress
- Open Access
This item is currently unavailable due to the publisher's embargo.
The embargo period expires on 1 Jan 2020
© 2018 Wiley Periodicals, Inc. I study points programs, such as frequent flyer and other rewards programs, as a revenue management tool. I develop a two-period contracting model where a capacity-constrained firm faces consumers who privately learn their valuations over time. The firm cannot commit to long-term contracts, but it can commit to allocate any unsold capacity through a points program. This points scheme creates an endogenous and type-dependent outside option for consumers, which generates novel incentives in the firm's pricing problem. It induces the firm to screen less ex interim, and to offer lower equilibrium prices, reversing the intuition of demand cannibalization.
Please use this identifier to cite or link to this item: