Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?
AbstractThis paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price the buyer pays for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study shows that there in fact is a loyalty enhancing effect of retroactive discounts and how it relates to risk preferences and loss aversion.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2013-21.
Length: 22 pages
Date of creation: 31 Aug 2013
Date of revision:
Other versions of this item:
- Lisa Bruttel, 2013. "Is there an exclusionary effect of retroactive price reduction schemes?," TWI Research Paper Series 84, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-CBE-2013-11-16 (Cognitive & Behavioural Economics)
- NEP-COM-2013-11-16 (Industrial Competition)
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