Episode Details

Discounts always feel like competition. Lower prices should help the customer and make rivals respond. But what if a big rebate is contingent not just on how much a customer buys from a company but on how little it buys from its competitors?

In this episode of EconWorks, we examine the economics of loyalty discounts through FTC v. Syngenta & Corteva. Let’s start from the perspective of a pricing specialist. Quantity discounts and nonlinear pricing are perfectly normal responses to differences in willingness to pay.

The problem is not price discrimination per se. Then a generic competitor comes in. If all the customer does is to preserve a big rebate by buying 90% or more of its requirements from the incumbent, suddenly buying one extra cheaper generic unit can be costly. So the key question is not about whether there was a discount. The answer is: What was the discount intended to buy?

More purchases from the incumbent, or fewer purchases from the rival? We also consider the evidence that may differentiate the two explanations, including pricing documents, loyalty thresholds, generic entry, and the magnitude of the "loyalty cliff."

Read the full article and graphic analysis: https://blog.econworks.com/p/when-is-a-discount-a-wall?r=562wri

Explore more visual economics content: https://econworks.com

YouTube: https://www.youtube.com/@EconWorks-d3e

Substack: https://blog.econworks.com