Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?
- 52 Downloads
This paper presents an experiment on the effect of retroactive price-reduction schemes on buyers’ repeated purchase decisions. Such schemes promise buyers a reduced price for all units that are bought in a certain time frame if the total quantity that is purchased passes a given threshold. This study finds a loyalty-enhancing effect of retroactive price-reduction schemes only if the buyers ex-ante expected that entering into the scheme would maximize their monetary gain, but later learn that they should leave the scheme. Furthermore, the effect crucially hinges on the framing of the price reduction.
KeywordsBuyer behavior Experiment Loss aversion Rebate and discount Regulation of dominant firms Risk aversion
I would like to thank Marco Caliendo, Dirk Engelmann, Miguel Fonseca, Jochen Gloeckner, participants of TIBER XII in Tilburg, the ESA European meeting in Heidelberg, the GfeW meeting in Kassel, and of research seminars in Bonn and Kreuzlingen for very helpful suggestions. Alexandra Haas and Jana Hamdan provided highly valuable research assistance.
- Crane, D. A. (2015). Conditional pricing and monopolization: A reflection on the state of play. Competition Law and Policy Debate, 1(1), 44–49.Google Scholar
- Durkin, S. (2017). The competitive effects of loyalty discounts in a model of competition implied by the discount attribution test. Antitrust Law Journal, 81(2), 475–506.Google Scholar
- European Commission (2009). Guidance on the commission’s enforcement priorities in applying article 82 of the EC treaty to abusive exclusionary conduct by dominant undertakings. Official Journal of the European Union, 52, 7–20.Google Scholar
- Fumagalli, C., & Motta, M. (2017). On the use of price-cost tests in loyalty discounts and exclusive dealing arrangements: Which implications from Economic theory should be drawn? Antitrust Law Journal, 81(2), 537–585.Google Scholar
- Genchev, B., & Mortimer, J. H. (2017). Empirical evidence on conditional pricing practices: A review. Antitrust Law Journal, 81(2), 343–345, 347–370Google Scholar
- Jacobson, J. M., & Weick, D. P. (2017). Countering exclusion: The complainant’s obligation. Antitrust Law Journal, 81(2), 423–446.Google Scholar
- Klein, B., & Lerner, A. V. (2016). Price-cost tests in antitrust analysis of single product loyalty contracts. Antitrust Law Journal, 80(3), 631–679.Google Scholar
- Laskowska, M. (2016). Exclusive dealing: Loyalty discounts should always be legal, except in the case of high entry barriers. Business Law Review, 37(6), 233–237.Google Scholar
- Maier-Rigaud, F. P. (2005). Switching costs in retroactive rebates: What’s time got to do with it? European Competition Law Review, 26(5), 272–276.Google Scholar
- Morell, A., Gloeckner, A., & Towfigh, E. (2009). Sticky rebates: Target rebates induce non-rational loyalty in consumers. Retrieved August 4, 2018, from Max Planck Institute for Research on Collective Goods, MPG Publication Repository: http://hdl.handle.net/11858/00-001M-0000-0028-6F4C-E
- Rabin, M. (1998). Psychology and economics. Journal of Economic Literature, 36(1), 11–46.Google Scholar
- Salinger, (2017). All-units discounts by a dominant producer threatened by partial entry. Antitrust Law Journal, 81(2), 507–536.Google Scholar
- Steuer, R. M. (2017). Musthavedness. Antitrust Law Journal, 81(2), 447–474.Google Scholar