Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts
AbstractThis article evaluates two different remedies for consumers who have been injured by a price overcharge on the sale of a good. Under a coupon remedy, injured consumers are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated, that is, below the competitive price. Under a discount remedy, any consumer, without proof of injury, may purchase the good for a limited period of time at a price that is set below the competitive price. Both remedies generally cause consumers to buy an excessive amount of the good during the remedy period. Under the coupon remedy only a subset of consumers are affected in this way (those holding a relatively high number of coupons), while under the discount remedy all consumers are affected. We show nonetheless that the resulting deadweight loss could be lower under the discount remedy. We also consider how the deadweight loss changes when the length of the remedy period is increased by extending the expiration date for the use of coupons or by employing a lower discount for a longer period of time. The deadweight loss may or may not decline under the coupon remedy, though it does decline under the discount remedy. In neither case, however, does it go to zero in the limit.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10162.
Date of creation: Dec 2003
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Other versions of this item:
- A. Mitchell Polinsky & Daniel L. Rubinfeld, 2004. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Microeconomics 0401001, EconWPA.
- A. Mitchell Polinsky & Daniel Rubinfeld, . "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," American Law & Economics Association Annual Meetings 1060, American Law & Economics Association.
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
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- Severin Borenstein, 1995.
"Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits,"
NBER Working Papers
5085, National Bureau of Economic Research, Inc.
- Borenstein, Severin, 1996. "Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 379-404, October.
- A. Mitchell Polinsky & Daniel L. Rubinfeld, 2005.
"A Damage-Revelation Rationale for Coupon Remedies,"
NBER Working Papers
11227, National Bureau of Economic Research, Inc.
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