Rebates, inventories, and intertemporal price discrimination

We demonstrate that universally redeemed rebates can increase manufacturer profits by reducing the incentives of downstream retailers to hoard invento ries when optimal wholesale prices vary predictably over time. By bypassing retailers and making direct contracts with buyers, the manufacturer can in crease the variations in effective prices paid by consumers without concomi tantly creating larger incentives for retailers to hold inventories. During profitable, high-demand periods, manufacturer revenues are ordinarily cons trained by "competition" from retailer inventories, thus limiting profits. However; by selectively offering rebates to consumers while maintaining hig h wholesale prices, low-demand periods cart be accommodated without inducin g retailer hoarding. (JEL D4, L1).