Friday, September 20, 2013
Lisa Bruttel (Universitat Konstanz) asks Is there an exclusionary effect of retroactive price reduction schemes?
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.