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

Author

Listed:
  • Frank P. Maier-Rigaud

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

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:mpg:wpaper:2005_03
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    Citations

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    Cited by:

    1. Lisa Bruttel, 2013. "Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?," Working Paper Series of the Department of Economics, University of Konstanz 2013-21, Department of Economics, University of Konstanz.
    2. Lisa Bruttel, 2019. "Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(3), pages 575-593, May.
    3. Hakenes, Hendrik & Schnabel, Isabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 107, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Do Retroactive Rebates Imply Lower Prices for Consumers?," Working Papers 2013-ECO-10, IESEG School of Management.

    More about this item

    Keywords

    Retroactive rebates; article 82 ECT; reference period; infrapersonal price discrimination; foreclosure;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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