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Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence

Author

Listed:
  • Christopher T. Conlon

    () (New York University, Stern School)

  • Julie Holland Mortimer

    () (Boston College)

Abstract

Vertical rebates are prominently used across a wide range of industries. These contracts may induce greater retail effort, but may also prompt retailers to drop competing products. We study these offsetting efficiency and foreclosure effects empirically, using data from one retailer. Using a field experiment, we show how the rebate allocates the cost of effort between manufacturer and retailer. We estimate models of consumer choice and retailer behavior to quantify the rebate’s effect on assortment and retailer effort. We find that the rebate increases industry profitability and consumer utility, but fails to maximize social surplus and leads to upstream foreclosure.

Suggested Citation

  • Christopher T. Conlon & Julie Holland Mortimer, 2014. "Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence," Boston College Working Papers in Economics 863, Boston College Department of Economics, revised 01 Jun 2017.
  • Handle: RePEc:boc:bocoec:863
    Note: previously circulated as "Efficiency and Foreclosure Effects of All-Units Discounts: Empirical Evidence"
    as

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    References listed on IDEAS

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    Cited by:

    1. Arthur Lewbel, 2018. "The Identification Zoo - Meanings of Identification in Econometrics," Boston College Working Papers in Economics 957, Boston College Department of Economics.
    2. repec:eee:indorg:v:59:y:2018:i:c:p:253-281 is not listed on IDEAS
    3. Bogdan Genchev & Julie Holland Mortimer, 2016. "Empirical Evidence on Conditional Pricing Practices," NBER Working Papers 22313, National Bureau of Economic Research, Inc.
    4. Enrique Ide & Juan-Pablo Montero & Nicolás Figueroa, 2016. "Discounts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 106(7), pages 1849-1877, July.

    More about this item

    Keywords

    foreclosure; vertical restraints; conditional pricing practices; rebates;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L8 - Industrial Organization - - Industry Studies: Services
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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