Journal title ECONOMIA PUBBLICA
Author/s Giuseppe Clerico
Publishing Year 2008 Issue 2007/3-4 Language Italian
Pages 22 P. 23-45 File size 326 KB
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In case of harm to consumers or excessive prices caused by market power a firm can be forced to reduce the price. The main ways in wich this can be implemented are four: fixed cash, per cent discount, fixed monetary discounts, coupons. These remedies are not indifferent in terms both of producer incentives and impact on consumer welfare. The remedies, besides an income effect can also cause a substitution effect. Cash remedy causes only an income effect but has a high transaction cost. Coupons, besides the income effect, cause a substitution effect too. So, in terms of social welfare cash remedy seems preferable to coupons. Discounts can be preferable to cash as they allow transaction cost saving. However, discount remedy, besides the income effect, causes also a substitution effect. Overall, the preference among the different remedies needs an accurate economic assessment of both transaction costs of different remedies and their effects (income and substitution). When the harm evaluation is difficult and the harm variance is high it seems socially preferable a simultaneous use of cash and coupons remedies, allowing the consumer to choose the remedy. The simultaneous use of cash and coupons allows the choice (between the two) by the harmed consumers and makes it easier the equivalent between paid damage by the producer and the customer harm. As a result, the producer has a higher incentive to choose a more efficient level of precaution to reduce harm. Furthemore, the customer’s free choice between cash and coupons allows preference revelation making easier the solution of the problems relative to the transaction costs to evaluate harm.
Giuseppe Clerico, Cash, coupon e sconto. Valutazione economica delle alternative di risarcimento dell’acquirente in "ECONOMIA PUBBLICA " 3-4/2007, pp 23-45, DOI: