Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence

61 Pages Posted: 28 Dec 2013

See all articles by Christopher T. Conlon

Christopher T. Conlon

Columbia University

Julie H. Mortimer

Boston College; National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Date Written: December 2013

Abstract

Vertical rebates are prominently used across a wide range of industries. These con- tracts may induce greater retail effort, but may also prompt retailers to drop competing products. We study these offsetting efficiency and foreclosure effects empirically, using data from one retailer. Using a field experiment, we show how the rebate allocates the cost of effort between manufacturer and retailer. We estimate structural models of demand and retailer behavior to quantify the rebate's effect on assortment and retailer effort. We find that the rebate increases industry profitability and consumer utility, but fails to maximize social surplus and leads to upstream foreclosure.

Suggested Citation

Conlon, Christopher T. and Mortimer, Julie H., Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence (December 2013). NBER Working Paper No. w19709, Available at SSRN: https://ssrn.com/abstract=2372476

Christopher T. Conlon (Contact Author)

Columbia University ( email )

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New York, NY 10027
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Julie H. Mortimer

Boston College ( email )

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617-552-3676 (Phone)

HOME PAGE: http://fmwww.bc.edu/ec/mortimer.php

National Bureau of Economic Research (NBER) ( email )

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Harvard University - Department of Economics ( email )

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Cambridge, MA 02138
United States

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