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Pouyet, Jérôme and Martimort, David
(2026)
"The Incentive Virtues of Performance-Based Trade Allowances and Loss Leading".
Journal of Industrial Economics.
(In Press)
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Abstract
A retailer can boost demand for a manufacturer’s product through non-verifiable activities. Performance-based trade allowances—rebates conditional on the retailer’s successful sales efforts—help mitigate this moral hazard problem. In equilibrium, the wholesale contract includes a retail price set below cost, complemented by a rebate for incremental units purchased when efforts successfully increase sales. Loss leading thus emerges as an incentive mechanism, rather than a practice driven by anti-competitive or exploitative intent. A ban on below-cost pricing leads to higher retail prices and reduced promotional efforts.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | June 2026 |
| Refereed: | Yes |
| Place of Publication: | Oxford |
| Uncontrolled Keywords: | vertical restraints, moral hazard, loss leading, performance-based allowances, below-cost pricing |
| JEL Classification: | L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts L81 - Retail and Wholesale Trade; Warehousing; e-Commerce |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 07 Sep 2026 08:09 |
| Last Modified: | 07 Sep 2026 08:10 |
| OAI Identifier: | oai:tse-fr.eu:132045 |
| URI: | https://publications.ut-capitole.fr/id/eprint/53938 |
Available Versions of this Item
-
The Incentive Virtues of Performance-Based Trade Allowances and Loss Leading. (deposited 09 Sep 2024 06:47)
- "The Incentive Virtues of Performance-Based Trade Allowances and Loss Leading". (deposited 07 Sep 2026 08:09) [Currently Displayed]
