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.
