Loyalty discounts and price-cost tests

Giacomo Calzolari () and Vincenzo Denicolo' ()

International Journal of Industrial Organization, 2020, vol. 73, issue C

Abstract: We analyze, by means of a formal economic model, the use of the discount-attribution test to assess the competitive effects of loyalty discounts. (The discount-attribution test is a variant of the price-cost test, where the discount is attributed only to the share of total demand that is regarded as effectively contestable.) In the model, a dominant firm enjoys a competitive advantage over its rivals and uses market-share discounts to boost the demand for its own products. In this framework, we show that the attribution test is misleading or, at best, completely uninformative. Our results cast doubts on the applicability of price-cost tests to loyalty discount cases.

Keywords: Loyalty discounts; As-efficient competitor; Price-cost test; Contestable share; Discount-attribution test (search for similar items in EconPapers)
JEL-codes: D42 D82 L42 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:73:y:2020:i:c:s0167718720300114

DOI: 10.1016/j.ijindorg.2020.102589

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