Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 801: Retailer Choice and Loyalty Schemes - Evidence from Sweden

Johan Lundberg () and Sofia Lundberg ()
Additional contact information
Johan Lundberg: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Sofia Lundberg: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: From economic theory, it is known that consumer loyalty schemes can have lock-in effects resulting in entry barriers and higher prices. This paper concerns consumer loyalty schemes where the main issue is to test the hypothesis that loyalty scheme membership affects the choice of food retailer. This choice is modeled as a random utility maximization problem estimated with maximum likelihood. Based on a data set covering 1,551 Swedish households, we find evidence supporting this hypothesis. Further, according to the results, store characteristics and geographical distance matter for the choice of retailer while household characteristics are not found to have a significant effect.

Keywords: Bonus card; Conditional logit; Consumer choice; Distance; Food retailer; Loyalty scheme

JEL-codes: D12; L49; L66; L81; R10

34 pages, February 9, 2010

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