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Discussion Paper Details

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Full Details

Title: Price-cost tests and loyalty discounts

Author(s): Giacomo Calzolari and Vincenzo Denicolò

Publication Date: May 2018

Keyword(s): As-efficient competitor, Contestable share, Loyalty discounts, Price-cost tests and Sacrifice of profit

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Calzolari, G and Denicolò, V. 2018. 'Price-cost tests and loyalty discounts'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12924