Discounts as a Barrier to Entry
- (pp. 1849-77)
Abstract
To what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry? We show that off-list-price rebates that do not commit buyers to unconditional transfers--like the rebates in EU Commission v. Michelin II, for instance--cannot be anticompetitive. This is true even in the presence of cost uncertainty, scale economies, or intense downstream competition, all three market settings where exclusion has been shown to emerge with exclusive dealing contracts. The difference stems from the fact that, unlike exclusive dealing provisions, rebates do not contractually commit retailers to exclusivity when signing the contract.Citation
Ide, Enrique, Juan-Pablo Montero, and Nicolás Figueroa. 2016. "Discounts as a Barrier to Entry." American Economic Review, 106 (7): 1849-77. DOI: 10.1257/aer.20140131Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D86 Economics of Contract: Theory
- K21 Antitrust Law
- L13 Oligopoly and Other Imperfect Markets
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L42 Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L60 Industry Studies: Manufacturing: General