Price-cost tests and loyalty discounts

Giacomo Calzolari () and Vincenzo Denicolo' ()

No 12924, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze, by means of a formal economic model, the use of price-cost tests to assess the competitive effects of loyalty discounts. In the model, a dominant firm enjoys a competitive advantage over its rivals and uses loyalty discounts as a means to boost the demand for its product. We show that in this framework price-cost tests are misleading or, at best, completely uninformative. Our results cast doubts on the applicability of price-tests to loyalty discount cases.

Keywords: Loyalty discounts; As-efficient competitor; Price-cost tests; Sacrifice of profit; Contestable share (search for similar items in EconPapers)
JEL-codes: D42 D82 L42 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (3)

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