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Do Retroactive Rebates Imply Lower Prices for Consumers?

Listed author(s):
  • Frank Maier-Rigaud

    ()

    (IESEG School of Management (LEM-CNRS))

  • Ulrich Schwalbe

    ()

    (Institut für Volkswirtschaftslehre, Universität Hohenheim)

Registered author(s):

    Despite a host of recent cases on both sides of the Atlantic, the antitrust implications of retroactive rebates or loyalty discounts are among the most controversial topics in competition law. One of the key beliefs found in the literature is that such schemes lead to lower prices for consumers and that competition authorities therefore need to be particularly prudent in balancing these “obvious" pro-competitive effects against potential foreclosure concerns. Based on a simple model it is shown that retroactive rebates do not necessarily imply lower prices for consumers and that, on the contrary, even total welfare may decline as a result of the introduction of a rebate scheme. In addition to leading to higher prices, rebate schemes may hurt consumers by inducing them to buy a higher quantity than they otherwise would. The belief that rebates increase consumer welfare as they imply lower prices is shown to be based on the fundamentally awed reliance on the non-rebated base price as appropriate counterfactual.

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    File URL: http://www.ieseg.fr/wp-content/uploads/2013-ECO-10_Maier-Rigaud.pdf
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    Paper provided by IESEG School of Management in its series Working Papers with number 2013-ECO-10.

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    Length: 29 pages
    Date of creation: Jun 2013
    Handle: RePEc:ies:wpaper:e201310
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    1. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    2. Bruce Kobayashi, 2005. "The Economics of Loyalty Rebates and Antitrust Law in the United States," CPI Journal, Competition Policy International, vol. 1.
    3. Eberhard Feess & Ansgar Wohlschlegel, 2010. "All-Unit Discounts and the Problem of Surplus Division," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(3), pages 161-178, November.
    4. M. Adam & F. Maier-Rigaud, 2009. "The Law and Economics of Article 82 EC and the Commission Guidance Paper on Exclusionary Conduct," Post-Print hal-00800756, HAL.
    5. Greenlee, Patrick & Reitman, David & Sibley, David S., 2008. "An antitrust analysis of bundled loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1132-1152, September.
    6. Frank P. Maier-Rigaud, 2005. "Switching Costs in Retroactive Rebates – What’s time got to do with it?," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2005_3, Max Planck Institute for Research on Collective Goods.
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