New Economics Papers
on Law and Economics
Issue of 2005‒07‒25
two papers chosen by
Jeong-Joon Lee, Towson University

  1. Switching Costs in Retroactive Rebates – What’s time got to do with it? By Frank P. Maier-Rigaud
  2. Social Dilemmas, Revisited from a Heuristics Perspective By Christoph Engel

  1. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: This paper analyzes the role of the reference period in assessing switching costs in retroactive rebates. A retroactive rebate allows a firm to use the inelastic portion of demand as leverage to decrease price in the elastic portion of demand, thereby artificially increasing switching costs of buyers. I identify two factors that determine the extent to which retroactive rebates, as a form of infra-personal price-discrimination, can result in potential market foreclosure. These two factors are the rebate percentage and the threshold at which this percentage is retroactively applied. In contrast to the existing literature, the length of the reference period within which a rebate scheme applies is demonstrated to be at best an indirect approximation of the potential foreclosure effects of a rebate.
    Keywords: Retroactive rebates, article 82 ECT, reference period, infrapersonal price discrimination, foreclosure
    JEL: L42 K21 D43
    Date: 2005–02
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The standard tool for analysing social dilemmas is game theory. They are reconstructed as prisoner dilemma games. This is helpful for understanding the incentive structure. Yet this analysis is based on the classic homo oeconomicus assumptions. In many real world dilemma situations, these assumptions are misleading. A case in point is the contribution of households to climate change. Decisions about using cars instead of public transport, or about extensive air conditioning, are typically not based on ad hoc calculation. Rather, individuals rely on situational heuristics for the purpose. This paper does two things: it offers a model of heuristics, in the interest of making behaviour that is guided by heuristics comparable to behaviour based on rational reasoning. Based on this model, the paper determines the implications for the definition of social dilemmas. In some contexts, the social dilemma vanishes. In other contexts, it must be understood, and hence solved, in substantially different ways.
    Keywords: Heuristic, Social Dilemma, Public Good, Prisoner’s Dilemma
    JEL: A12 A13 C91 D62 H41 K32

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