A fascinating and all-too-brief perspective on the economics of rebates, from Robert Frasca at Division of Labour: tax avoidance as the real reason for this largely annoying institution:
Rebates turn customers into creditors. If it is cheaper to borrow from customers than from financial markets, then it is efficient for the company to offer rebates. Once we view rebate customers as creditors then we can also view part of the rebate as interest income. The interest income is embodied in the discounted price. This “income” escapes taxation. Accordingly, the tax benefit can be shared by the debtor and the creditor. In effect, tax avoidance on interest income provides an additional incentive for engaging in rebates.
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Nah. I doubt most sellers think that way. Rebates are just a way of trying to make some extra money because some portion of those eligible will never redeem the rebate. I’ve lost track of how many times I’ve sent in rebate certificates and never gotten back a check. A loan it may be, but much more often it’s either a gimmick or a scam.
I agree about this being more of a scam than a lender-creditor dynamic, but I had always considered this scam to be obvious–like how companies transfer costs to employees by locating in cheap industrial parks far away from residential areas.
I would think that rebates are more for advertising purposes. I have seen cases where the rebate was for the same amount as the cost of the product.
Around here, it simply shifts tax to the purchaser. If I buy something for $250 that has a $100 rebate, I have to pay sales tax (provincial and federal) on the full $250, and I get no refund for that.
As Mr. tucker points out, this institution is annoying; it’s usually dishonest too, since there are many ways the company can avoid paying the rebate it has promised. I simply don’t buy products with rebates.
I find it odd that on a conservative website we might argue that certain market behavior exists because consumers are gullible or stupid. This is something I might more expect from the People for the American Way.
I don’t doubt that people make mistakes, but even a kicked dog learns to hide. I am wary of any explanation that depends on the assumption that people are stupid and markets don’t work.
I find it odd that you think this is a conservative website.
I, for one, am a radical.
Vanmind –
I, for one, am a radical.
Out of curiousity, do you mean radical in the communist sense or in the “radical for capitalism” sense? Or neither?
– Lowell R.
Well I’ve never analyzed myself past the “radical” part.
I will say this:
When I was seven, the government decided that I was too smart to be allowed to cost them money for the same amount of years as the rest of the children, so they forced me ahead a grade; when I protested, they beat me.
When I was in high school, I ran an election season write-in campaign for “Igor Schwartz.” He placed third out of six candidates.
By the time I finished high school, I realized that science/math was too simple (e.g. a final mark of 100% in Grade 13 Calculus), so I followed a post-secondary path of Fine Arts because I knew that would be more challenging (only years later did I discover Kant’s assertion that fine artists are “mankind’s genius”).
I have never voted for either the Liberals or NDP (which might not mean anything to non-Canadians).
Twenty five years ago I invented what would grow into the greatest internet-based business idea in history, one that would use metals-backed e-currencies. Banksters blocked my progress at every turn, and so-called experts said my ideas were “idiotic” (these same ideas are being called “genius” now that friends-of-banksters have stolen them from me).
In the early 90′s I lived in Mississippi, but the way things are now I refuse to set foot on US soil (2.5 years and counting).
I scoff all religions for being man-made.
I hate all my government’s precious agencies, but I still apply for Canada Council grants. In fact, I got my latest rejection letter from them a few days ago because my proposal wasn’t in line with their agenda to support (to quote) “communal art projects.”
I am hungry day-to-day, but I refuse to allow MBA scum to continue undervaluing writers–for writers are the most valuable people in any civilized society.
There are many other things, of course, but I will not continue to bore people. I leave it up to the individual to decide for themselves whether they think I’m a libertarian or a commie–their opinion has zero value anyway.
Well, if our opinion has zero value, Mr. Bitterness, what was that chest-beating tirade all about?
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