Minshen Li

I am a Ph.D. candidate in Economics at the University of Pennsylvania. My research interests include quantitative marketing, empirical industrial organization, loyalty programs, and consumer behavior. My committee members are Prof. Aviv Nevo (Advisor), Prof. Eric T. Bradlow, and Prof. Katja Seim.

I will be available for interviews at the 2019 AMA Summer Academic Conference in Chicago from August 8 to11. 

My job market paper, "Why Do Consumers Care About Loyalty Points?" (draft and slides available upon request), separately identifies an economic mechanism and a psychological mechanism that jointly explain why consumers would care about loyalty points in the “Collect X points, get a reward” type of loyalty (rewards) programs. It is puzzling that this type of programs would generate massive purchasing, patronage, or product usage incentive given that the rewards amount to much smaller price discounts than many other regular promotions on the market. I propose that the economic mechanism incentivizes consumers through the monetary value of the resulting price discounts, while the psychological mechanism generates the incentive through the satisfaction from goal achievement.

In the context of a European credit card loyalty program, I disentangle the economic and psychological source of credit card spending incentive driven by the program. Using the detailed records of credit card transactions, reward (voucher) generation, and cardholder redemption, I develop and estimate a structural model of credit card spending that incorporates the two mechanisms. In my model, forward-looking consumers use the focal credit card to earn loyalty points, in the hope of reaching reward thresholds, earning vouchers, and redeeming them in the future. In the economic mechanism, consumers endogenously choose the timing and amount of voucher redemption. In the psychological mechanism, consumers pursue extrinsic reward thresholds as goals and receive immediate satisfaction upon reaching the goals.

Using the model estimates and through counterfactual experiments, I find that the program increases credit card spending by ~6%, but the majority of the increase (~89%) is driven by the psychological mechanism. The psychological mechanism is effective as consumers value goal achievement and, in particular, experience increasing marginal value of hitting goals. The economic mechanism is ineffective due to the almost trivial monetary value of discounts perceived as well as a large redemption cost associated with the redemption process. 

Given the relatively effective psychological mechanism and the relatively ineffective economic mechanism, I further show through counterfactual experiments that increasing points per dollar spent (points issuance ratios) would increase profits for the credit card company while increasing the voucher face value would decrease the profits. While firms can increase profits by inducing consumers to increase credit card spending, consumers may be worse off due to higher interest and late fees as well as inactive redemption behavior. Given the estimated magnitude of the redemption cost, I find that increasing both points issuance ratios and voucher face value is a necessary condition for generating the win-win outcomes where profits increase without worsening consumer welfare. If the firm can effectively eliminate the redemption costs, increasing voucher face value alone can generate the win-win outcomes.

 

My teaching experiences include: 

Course Instructor

Introduction to Microeconomics 

  Fall 2018 

Introduction to Microeconomics (Online) 

  Summer 2018 

Introduction to Microeconomics (Online) 

  Summer 2017 

Teaching Assistant

Intermediate Microeconomics, Prof. Rohit Lamba 

Spring 2019 

Microeconomics: Demand, Supply, and the Social Good, Dr. Rebecca Stein 

Winter 2018 

Introduction to Microeconomics (Head TA), Dr. Anne Duchene

Fall 2017, Spring 2018

Introduction to Microeconomics, Dr. Rebecca Stein 

Spring 2016, 2017

Introduction to Microeconomics, Dr. Anne Duchene 

Fall 2015, 2016 

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minshen@sas.upenn.edu

+1 (215) 866-6134

Department of Economics
The Ronald O. Perelman Center for Political Science and Economics
133 South 36th Street
Office 640
Philadelphia, PA 19104

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