IDEAS home Printed from https://ideas.repec.org/p/twi/respas/0084.html
   My bibliography  Save this paper

Is there an exclusionary effect of retroactive price reduction schemes?

Author

Listed:
  • Lisa Bruttel

Abstract

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.

Suggested Citation

  • Lisa Bruttel, 2013. "Is there an exclusionary effect of retroactive price reduction schemes?," TWI Research Paper Series 84, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  • Handle: RePEc:twi:respas:0084
    as

    Download full text from publisher

    File URL: https://www.twi-kreuzlingen.ch/wp-content/uploads/2017/12/twi-rps-084-bruttel.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Uri Ben-Zion & Yuval Cohen & Ruth Peled & TAL SHAVIT, 2007. "Decision-Making and the Newsvendor Problem – An Experimental Study," Working Papers 0711, Ben-Gurion University of the Negev, Department of Economics.
    2. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
    3. Vital Anderhub & Werner Güth & Uri Gneezy & Doron Sonsino, 2001. "On the Interaction of Risk and Time Preferences: An Experimental Study," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 239-253, August.
    4. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    5. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1039-1061.
    6. Douglas D. Davis & Edward L. Millner, 2005. "Rebates, Matches, and Consumer Behavior," Southern Economic Journal, Southern Economic Association, vol. 72(2), pages 410-421, October.
    7. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
    8. Gerald Eisenkopf, 2007. "Learning and Peer Effects," TWI Research Paper Series 16, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    9. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    10. 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.
    11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    12. 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.
    13. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    14. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    15. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    16. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    17. Davis, Douglas D. & Holt, Charles A., 1994. "The effects of discounting opportunities in laboratory posted-offer markets," Economics Letters, Elsevier, vol. 44(3), pages 249-253.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    consumer behavior; risk aversion; loss aversion; experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:twi:respas:0084. 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: (Gregor Walter). General contact details of provider: http://edirc.repec.org/data/twikrch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.