Essays on competition for customer memberships

2018-05-06In this collection of papers, we study competition and consumer behavior in membership/subscription markets. Generally, firms that implement a membership model, charge a “membership” fees that allow consumers to buy products/services at a unit price, in multiple periods. There are three main questions that we attempt to answer (i) What is the optimal pricing strategy when firms use the membership model (i.e., Tariff Structure)? (ii) How the tariff structure affects competition: consumers' behavior and firms' profits? What are the differences between a static and a dynamic framework? ❧ In the first chapter, ""Competition in Two-Part Tariffs Between Asymmetric Firms"" (with Guofu Tan), we study competitive two-part tariffs (2PTs) in a general model of asymmetric duopoly firms offering (both vertically and horizontally) differentiated products. We provide a necessary and sufficient condition for marginal cost pricing to be in equilibrium, in both the Hotelling and general discrete choice approaches to horizontal differentiation. In the Hotelling setting, when the firms face symmetric demands but have asymmetric marginal costs, we show that in equilibrium the inefficient firm sets its marginal price below its own marginal cost and compensates this loss with the fixed fee, while the efficient firm sets its marginal price above its own marginal cost but below its rival's price. The inferior firm “cross-subsidies” between the fixed fee and the marginal price. ❧ In the second chapter, ``Dynamic Competition for Customer Memberships'', I study a competitive two-period membership (subscription) market, in which two symmetric firms charge a “membership” fee that allows consumers to buy products or services at a given unit price, in both periods. I explore how (i) the length of the membership (ii) the ability to price discriminate between “old” and “new” customers with the membership fee and the unit price; and (iii) the incentives to price discriminate between different consumers’ tastes, affect the competition. When firms employ long-term membership, firms have incentives to prevent their old most valuable customers from being ‘poached’ by the competitor, thus in equilibrium, firms price discriminate with their membership fee and unit price regarding customer purchased-behavior and volume of demand (second-degree). Instead, with short-term membership, firms only discriminate with their membership fee, between new and old customer. ❧ In the last chapter of my dissertation, I study how the quality of managers contributes to productivity dynamics of the teams they manage. We match two years of daily, line-level production data from six garment factories in India to rich survey data on managerial practices of line supervisors. We measure contributions of 6 distinct dimensions of managerial quality motivated by previous literature: tenure, cognitive skills, autonomy, personality psychometrics, attention, and “relatability” to workers. We find that while tenure as a supervisor contributes to all aspects of productivity dynamics, additional dimensions of managerial quality such as attention and autonomy contribute strongly as well, particularly to the rate of learning and retention of learned productivity. Personality impacts initial productivity most strongly, while cognitive skills contribute to learning. Additional results indicate that these dimensions of quality are generally undervalued in supervisor pay