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Switching Costs in Retroactive Rebates – What’s time got to do with it?

Listed author(s):
  • Frank P. Maier-Rigaud


    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

This paper analyzes the role of the reference period in assessing switching costs in retroactive rebates. A retroactive rebate allows a firm to use the inelastic portion of demand as leverage to decrease price in the elastic portion of demand, thereby artificially increasing switching costs of buyers. I identify two factors that determine the extent to which retroactive rebates, as a form of infra-personal price-discrimination, can result in potential market foreclosure. These two factors are the rebate percentage and the threshold at which this percentage is retroactively applied. In contrast to the existing literature, the length of the reference period within which a rebate scheme applies is demonstrated to be at best an indirect approximation of the potential foreclosure effects of a rebate.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Discussion Paper Series of the Max Planck Institute for Research on Collective Goods with number 2005_3.

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Length: 11 pages
Date of creation: Feb 2005
Handle: RePEc:mpg:wpaper:2005_03
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