Is there an exclusionary effect of retroactive price reduction schemes?
This paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied ex post to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study considers whether there in fact is a loyalty enhancing effect of retroactive discounts and shows how it relates to risk preferences and loss aversion.
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