Abstract

http://ssrn.com/abstract=2276396
 
 

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Do Retroactive Rebates Imply Lower Prices for Consumers?


Frank P. Maier-Rigaud


IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; NERA Economic Consulting

Ulrich Schwalbe


University of Hohenheim

June 8, 2013


Abstract:     
Despite a host of recent cases on both sides of the Atlantic, the antitrust implications of retroactive rebates or loyalty discounts are among the most controversial topics in competition law. One of the key beliefs found in the literature is that such schemes lead to lower prices for consumers and that competition authorities therefore need to be particularly prudent in balancing these "obvious" pro-competitive effects against potential foreclosure concerns. Based on a simple model it is shown that retroactive rebates do not necessarily imply lower prices for consumers and that, on the contrary, even total welfare may decline as a result of the introduction of a rebate scheme. In addition to leading to higher prices, rebate schemes may hurt consumers by inducing them to buy a higher quantity than they otherwise would. The belief that rebates increase consumer welfare as they imply lower prices is shown to be based on the fundamentally flawed reliance on the non-rebated base price as appropriate counterfactual.

Number of Pages in PDF File: 31

Keywords: antitrust, competition, loyalty discounts, loyalty rebates, retroactive rebates, consumer welfare, producer welfare, competition policy

JEL Classification: D42, K21, L12, L42

working papers series


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Date posted: June 10, 2013 ; Last revised: July 22, 2013

Suggested Citation

Maier-Rigaud, Frank P. and Schwalbe, Ulrich, Do Retroactive Rebates Imply Lower Prices for Consumers? (June 8, 2013). Available at SSRN: http://ssrn.com/abstract=2276396 or http://dx.doi.org/10.2139/ssrn.2276396

Contact Information

Frank P. Maier-Rigaud (Contact Author)
IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods ( email )
Socle de la Grande Arche
1 Parvis de la Défense
Paris, La Défense Cedex, 92044
France
NERA Economic Consulting ( email )
1166 Avenue of the Americas
New York, NY 10036
United States
Ulrich Schwalbe
University of Hohenheim ( email )
Schloss Hohenheim
Stuttgart, 70593
Germany
+49 (0)711 45922992 (Phone)
Feedback to SSRN


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