Product rebates, therefore, always result in increased Consumer Costs.
Remember the principle of TANSTAAFL – There Ain’t No Such Thing As A Free Lunch!!
In the long run, the price a suppler receives has to cover her economic cost of production. Otherwise the supplier will be driven into bankruptcy.
If General Motors offers a rebate on the purchase of a Chevy Equinox, then either
1) the list price is sufficiently higher than GM’s total economic cost of producing that Equinox, and the rebate is just a marketing ploy;
GM pays the difference out of their Opportunity Profit.
2) or the price with rebate is below GM’s total economic cost of production of that Equinox, and someone else is paying the difference.
With retail rebates, it is generally other customers who pay.
And remember, the cost of running the rebate program is an additional cost that GM has to cover. Someone always pays!
