Price Competition with Repeat, Loyal Buyers

Many empirical studies have established that state dependence varies across consumers, brands, and categories. Previous analytic models have assumed that state dependence is a customer characteristic that does not vary across firms. In contrast, we take the view that state dependence varies by firm. That is, a well-known national brand, such as Tide detergent, may be able to attract more repeat, loyal buyers than a lesser-known rival brand. While this view of state dependence is supported by empirical research (Van Oest and Frances 2003), it has not been previously considered in analytic models.