How Loyalty Discounts Can Perversely Discourage Discounting: Comment

The CPI Antitrust Journal, Vol. 1, April 2010

9 Pages Posted: 14 May 2010

See all articles by Assaf Eilat

Assaf Eilat

Compass Lexecon

Jith Jayaratne

Compass Lexecon

Janusz A. Ordover

Compass Lexecon

Greg Shaffer

University of Rochester - Simon Business School

Date Written: April 2010

Abstract

In his recent paper entitled “How Loyalty Discounts Can Perversely Discourage Discounting,” Professor Einer Elhauge argues that exclusive contracts with loyalty discounts offered by a single incumbent seller can create anticompetitive effects in a broad range of settings. In this comment we show that the anticompetitive effect identified by Professor Elhauge stems from the most-favored-nation feature assumed in Elhauge’s model rather from loyalty discounts. Indeed, the qualitative effects in Professor Elhauge’s model are unchanged even when the loyalty discount is not present. Moreover, Professor Elhauge’s results are not robust and depend on a number of restrictive assumptions. In particular, there are no anticompetitive effects when competition, either between incumbent sellers or between entrants, is introduced.

Keywords: Loyalty Discounts, Fidelity Rebates, Conditional Discounts, Market-Share Discounts, Naked Exclusion

JEL Classification: C72, K21, L12, L40, L41, L42

Suggested Citation

Eilat, Assaf and Jayaratne, Jith and Ordover, Janusz A. and Shaffer, Greg, How Loyalty Discounts Can Perversely Discourage Discounting: Comment (April 2010). The CPI Antitrust Journal, Vol. 1, April 2010 , Available at SSRN: https://ssrn.com/abstract=1560028

Assaf Eilat (Contact Author)

Compass Lexecon ( email )

1101 K Street NW
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United States

Jith Jayaratne

Compass Lexecon

1101 K Street NW
8th Floor
Washington, DC 20005
United States

Janusz A. Ordover

Compass Lexecon ( email )

1101 K Street NW
8th Floor
Washington, DC 20005
United States
202-589-3450 (Phone)
202-589-3480 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/pages/bio.aspx?ID=120

Greg Shaffer

University of Rochester - Simon Business School ( email )

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