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Rebates as incentives to exclusivity

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  • Can Erutku

Abstract

We show how rebates (or fidelity discounts) that take the form of lump-sum payments made to retailers can be used by an incumbent manufacturer to achieve exclusivity and to deter the entry of a more efficient rival. The results, which hold whatever the degree of differentiation between retailers and whatever the cost advantage of the entrant, are found, despite minimizing asymmetries that may favour the incumbent. As such, there is no need to introduce buyers' disorganization, discriminatory offers, economies of scale, non-coincident markets, or liquidated damages to find that exclusivity can lead to anti-competitive effects.

Suggested Citation

  • Can Erutku, 2006. "Rebates as incentives to exclusivity," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 477-492, May.
  • Handle: RePEc:cje:issued:v:39:y:2006:i:2:p:477-492
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    Citations

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    Cited by:

    1. Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2012. "The effectiveness of manufacturer vs. retailer rebates within a newsvendor framework," European Journal of Operational Research, Elsevier, vol. 219(2), pages 252-263.
    2. Greer, Katja, 2013. "Limiting rival's efficiency via conditional discounts," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79730, Verein für Socialpolitik / German Economic Association.
    3. Katja Greer, 2013. "Limiting rival's efficiency via conditional discounts," Working Papers 132, Bavarian Graduate Program in Economics (BGPE).
    4. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.

    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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