In a world of competition, loyalty to a particular brand has a significant role in the behaviour of economic agents and the outcome of markets. The objective of this thesis is to examine the microeconomics of brand loyalty from three dimensions: consumer learning by using markets with switching costs, and uncertainty in product quality. The various methodologies used are based on extensions, modeling, and integrative analysis of some works in the literature, most notably those of Klemperer, Pepall, Thisse, Gabszewicz, Schwartz and Wilde, and Tirole. Brand loyalty arising from the above mentioned perspectives is tackled via three models. The first model is a two-period model examining the optimal pricing strategies to be adopted by an incumbent firm in a market characterized by sequential entry of firms and endogenous learning costs of consumers. The second model is a three-stage model examining the optimal pricing strategies to be adopted by a new entrant and an incumbent firm within a duopoly market with existence of switching costs. Sequential entry is assumed and sequential reactionary pricing strategies are derived. The third model is an integrative model dealing with consumer uncertainty in the quality of offered brands coupled with degree of price competitiveness of firms. Consumers are classified by their shopping behaviour whereas firms are differentiated by being honest, dishonest or opportunistic. Our findings indicate that the nature of brand loyalty alters market behaviour according to relative learning costs, fixed disutility of switching to an inexperienced brand, and joint probability of uncertain outcomes. In particular, consumer learning yields first-mover advantage, whereas the existence of switching costs softens price competition based on reactionary strategies, and uncertainty in product quality induces historical reputation of firms as an important determinant of consumer loyalty.


School of Business


Economics Department

Degree Name

MA in Economics

Date of Award

Spring 6-4-2005

Online Submission Date


First Advisor

Tarek H. Selim

Committee Member 1

Adel Beshai

Committee Member 2

John Salevurakis

Document Type



138 leaves :

Library of Congress Subject Heading 1

Brand loyalty.

Library of Congress Subject Heading 2



The author retains all rights with regard to copyright.

The American University in Cairo grants authors of theses and dissertations a maximum embargo period of two years from the date of submission, upon request. After the embargo elapses, these documents are made available publicly. If you are the author of this thesis or dissertation, and would like to request an exceptional extension of the embargo period, please write to thesisadmin@aucegypt.edu.

Creative Commons License

Creative Commons Attribution-No Derivative Works 4.0 International License
This work is licensed under a Creative Commons Attribution-No Derivative Works 4.0 International License.

Call Number

Thesis 2005/37