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Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits

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  • Borenstein, Severin

Abstract

Many recent class-action antitrust lawsuits have been settled with discount contracts in which the defendants agree to sell to the plaintiffs in the future at a discount off of the retail price charged to other buyers. The sellers can offset such discounts, however, by increasing the retail price. I show that these settlements have very small effects on the average price paid by all consumers; the harm to nondiscount consumers is about equal to the benefits to discount consumers. Since nondiscount buyers are not parties to these cases, however, the courts usually ignore the effect on them. Furthermore, the punishment imposed on sellers is much smaller than the cost to nondiscount buyers. I then examine an alternative form of "coupon settlements" that need not give sellers an incentive to raise price. The analysis is applied to recent settlements in the airline, auto, photocopying, and electronic game industries. Copyright 1996 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 39 (1996)
Issue (Month): 2 (October)
Pages: 379-404

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Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:379-404

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2006. "The Deadweight Loss of Coupon Remedies for Price Overcharges," Berkeley Olin Program in Law & Economics, Working Paper Series qt6943s2kd, Berkeley Olin Program in Law & Economics.
  2. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2004. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Microeconomics 0401001, EconWPA.
  3. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies For Price Overcharges: The Deadweight Loss Of Coupons And Discounts," Berkeley Olin Program in Law & Economics, Working Paper Series qt1gs1g2g2, Berkeley Olin Program in Law & Economics.
  4. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2006. "A Damage-Revelation Rationale for Coupon Remedies," Berkeley Olin Program in Law & Economics, Working Paper Series qt15d402t1, Berkeley Olin Program in Law & Economics.
  5. Baldenius, Tim & Reichelstein, Stefan J., 2004. "External and Internal Pricing in Multidivisional Firms," Research Papers 1825r, Stanford University, Graduate School of Business.
  6. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2005. "A Damage-Revelation Rationale for Coupon Remedies," Discussion Papers 04-009, Stanford Institute for Economic Policy Research.
  7. de Frutos, María-Ángeles & Fabra, Natalia, 2012. "How to allocate forward contracts: The case of electricity markets," European Economic Review, Elsevier, vol. 56(3), pages 451-469.
  8. Polinsky, A. Mitchell & Rubinfeld, Daniel L, 2007. "A Damage-Revelation Rationale for Coupon Remedies," Berkeley Olin Program in Law & Economics, Working Paper Series qt05s924dk, Berkeley Olin Program in Law & Economics.
  9. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Competition Policy Center, Working Paper Series qt92m0w4px, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.

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