How Loyalty Discounts Can Perversely Discourage Discounting: Comment

Assaf Eilat, Jith Jayaratne, Janusz Ordover, & Greg Shaffer, Apr 19, 2010

The academic literature on loyalty discounts and exclusive dealing demonstrates that the welfare effects of these practices are ambiguous and that market details determine the direction of the effect. However, 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. Moreover, he claims, “anticompetitive effects are exacerbated if multiple sellers use loyalty discounts.”

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