Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence

In many industries, upstream manufacturers pay downstream retailers for achieving quantity or market share targets. These “vertical rebates” may mitigate downstream moral hazard by inducing greater retail effort but may also incentivize retailers to drop competing products. We study these offsetting...

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Veröffentlicht in:The Journal of political economy 2021-12, Vol.129 (12), p.3357-3404
Hauptverfasser: Conlon, Christopher T., Mortimer, Julie Holland
Format: Artikel
Sprache:eng
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Zusammenfassung:In many industries, upstream manufacturers pay downstream retailers for achieving quantity or market share targets. These “vertical rebates” may mitigate downstream moral hazard by inducing greater retail effort but may also incentivize retailers to drop competing products. We study these offsetting effects empirically for a rebate paid to one retailer. Using a field experiment, we exogenously vary the outcome of retailer effort. We estimate models of consumer choice and retailer behavior to quantify the rebate’s effect on retail assortment and effort. We find that the rebate is designed to exclude a competing product and fails to maximize social surplus.
ISSN:0022-3808
1537-534X
DOI:10.1086/716563