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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.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:379-404
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    File URL: http://dx.doi.org/10.1086/467353
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    References listed on IDEAS

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    1. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn.
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    Cited by:

    1. A. Mitchell Polinsky & Daniel Rubinfeld, "undated". "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," American Law & Economics Association Annual Meetings 1060, American Law & Economics Association.
    2. 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.
    3. 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.
    4. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2005. "A Damage-Revelation Rationale for Coupon Remedies," Discussion Papers 04-009, Stanford Institute for Economic Policy Research.
    5. Baldenius, Tim & Reichelstein, Stefan J., 2004. "External and Internal Pricing in Multidivisional Firms," Research Papers 1825r, Stanford University, Graduate School of Business.

    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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