Efficiency and Foreclosure Effects of All-Units Discounts: Empirical Evidence
All-Units Discounts are vertical rebates in which a manufacturer pays a retailer a linear wholesale price up to a quantity threshold; beyond the threshold, the retailer receives a discount on all future and previous units. Such contracts, which are common in many industries, potentially have both efficiency and foreclosure effects. Using a new dataset containing detailed information on the sales and rebate payments of a retailer in the confections industry, we estimate structural models of demand and retailer effort to quantify the efficiency gains induced by the contract. We show how the contract allocates the cost of a stock-out between the manufacturer and retailer, and find evidence that the contract increases industry profitability, but fails to implement the product assortment that maximizes social surplus for the industry. Finally, we point out that the impact of many upstream mergers is felt through wholesale prices instead of retail prices. We examine the impact of various upstream mergers on the willingness of the dominant manufacturer to offer rebate contracts, and the impact that the rebate contracts have on social welfare.
|Date of creation:||Dec 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Howard P. Marvel & Raymond Deneckere & James Peck, 1995.
"Demand Uncertainty, Inventories, and Resale Price Maintainance,"
019, Ohio State University, Department of Economics.
- Deneckere, Raymond & Marvel, Howard P & Peck, James, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 885-913, August.
- Andrea Shepard, 1993. "Contractual Form, Retail Price, and Asset Characteristics in Gasoline Retailing," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 58-77, Spring.
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
- Bernheim, B.D., 1992.
Harvard Institute of Economic Research Working Papers
1622, Harvard - Institute of Economic Research.
- Christopher T. Conlon & Julie Holland Mortimer, 2010.
"Effects of Product Availability: Experimental Evidence,"
NBER Working Papers
16506, National Bureau of Economic Research, Inc.
- Christopher T. Conlon & Julie Holland Mortimer, 2010. "Effects of Product Availability: Experimental Evidence," Boston College Working Papers in Economics 798, Boston College Department of Economics.
- Hotz, V.J. & Miller, R.A., 1991.
"Conditional Choice Probabilities and the Estimation of Dynamic Models,"
GSIA Working Papers
1992-12, Carnegie Mellon University, Tepper School of Business.
- Hotz, V Joseph & Miller, Robert A, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 497-529, July.
- V. Joseph Hotz & Robert A. Miller, 1992. "Conditional Choice Probabilities and the Estimation of Dynamic Models," Working Papers 9202, Harris School of Public Policy Studies, University of Chicago.
- Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Chiara Fumagalli & Massimo Motta & Thomas Roende, 2009.
"Exclusive dealing, entry, and mergers,"
CSEF Working Papers
225, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2005. "Exclusive Dealing, Entry and Mergers," CEPR Discussion Papers 4902, C.E.P.R. Discussion Papers.
- Chiara Fumagalli & Massimo Motta & Lars Persson, 2006. "Exclusive dealing, entry, and mergers," CSEF Working Papers 153, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Ravi Anupindi & Maqbool Dada & Sachin Gupta, 1998. "Estimation of Consumer Demand with Stock-Out Based Substitution: An Application to Vending Machine Products," Marketing Science, INFORMS, vol. 17(4), pages 406-423.
- Fumagalli, Chiara & Motta, Massimo, 2002.
"Exclusive Dealing and Entry, when Buyers Compete,"
CEPR Discussion Papers
3493, C.E.P.R. Discussion Papers.
- Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, December.
- Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
- Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
- Fitzsimons, Gavan J, 2000. " Consumer Response to Stockouts," Journal of Consumer Research, University of Chicago Press, vol. 27(2), pages 249-66, September.
- Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
- Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
- Shaffer, Greg, 1991. "Capturing Strategic Rent: Full-Line Forcing, Brand Discounts, Aggregate Rebates, and Maximum Resale Price Maintenance," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 557-75, September.
- HernÃ¡n A. Bruno & Naufel J. Vilcassim, 2008. "—Structural Demand Estimation with Varying Product Availability," Marketing Science, INFORMS, vol. 27(6), pages 1126-1131, 11-12.
- Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-97, October.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19709. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.