One can easily observe in the real life that consumers intend to be variety-seeking in many markets. For instance, in the restaurant industry, people want to go to different restaurants for various food. In the tourist industry, consumers wouldn't like to go to the same scenery spot twice because they may feel aesthetic fatigue. These phenomena also exist in the fashion industry, in which the clients pay more attention to the product experience. In these markets, people who consume the same product twice may suffer from a utility loss. This kind of loss refers to the "staying cost". Moreover, one can also observe that some firms often tend to pre-commit lower prices for regular customers by offering membership card or discount coupons in these markets. In this paper, we analyze the marketing strategy made by firms in these markets as well as the effect of this behavior on the social welfare.
We develop a two period duopoly model based on Hotelling framework. We consider the case that firms can pre-commit special second period prices for loyal consumers. Both firms simultaneously set price as well as pre-commitments in the first period.In the second period, firms announce second period prices. At this time, loyal consumers can pay pre-commitment price, while newcomers must pay the second period price.
In the first part, we develop a two stage model and solve the sub-game perfect Nash equilibrium. The equilibrium shows that:(1) under the pre-commitment pricing scheme, firms can offer pre-commitment prices to the repeat purchasing consumers, and charge higher prices to the new ones; (2) the behavior of consumers' variety-seeking will weaken competition between firms, which lead to "tacit collusion".
In the second part, we make welfare analysis for the equilibrium outcome. We calculate the consumer surplus, firm profits and social welfare. We find that compared with other pricing schemes, pre-commitment pricing reduces profits of firms and social welfare, but increases consumer surplus.
In order to make our results more intuitive, we assign values to some variables to implement a numerical analysis. We offer the effect of staying cost on equilibrium in a coordinate system. We also assign different values to the staying cost so as to observe the difference between pricing strategies.
In summary, our model can make a good interpretation for some economic phenomena and enterprises' strategic behaviors in the real economy, and further make some significant suggestions for the firms' marketing strategy.