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Switching Costs in Retroactive Rebates – What’s time got to do with it?

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Author Info

  • Frank P. Maier-Rigaud

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

This paper analyzes the role of the reference period in assessing switching costs in retroactive rebates. A retroactive rebate allows a firm to use the inelastic portion of demand as leverage to decrease price in the elastic portion of demand, thereby artificially increasing switching costs of buyers. I identify two factors that determine the extent to which retroactive rebates, as a form of infra-personal price-discrimination, can result in potential market foreclosure. These two factors are the rebate percentage and the threshold at which this percentage is retroactively applied. In contrast to the existing literature, the length of the reference period within which a rebate scheme applies is demonstrated to be at best an indirect approximation of the potential foreclosure effects of a rebate.

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File URL: http://www.coll.mpg.de/pdf_dat/2005_03online.pdf
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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2005_3.

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Length: 11 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:mpg:wpaper:2005_03

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Related research

Keywords: Retroactive rebates; article 82 ECT; reference period; infrapersonal price discrimination; foreclosure;

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Cited by:
  1. Hakenes, Hendrik & Schnabel, Isabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 107, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Lisa Bruttel, 2013. "Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?," Working Paper Series of the Department of Economics, University of Konstanz 2013-21, Department of Economics, University of Konstanz.
  3. Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Do Retroactive Rebates Imply Lower Prices for Consumers?," Working Papers 2013-ECO-10, IESEG School of Management.

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