Maybe that product is a quirk. Let's try a search for the Western Digital MyBook 2 TB external drive. J&R Music has the drive for $458 including the $24 cashback. But why do that when you can get a cashback of $69 from our old friends at SupplyStore.com? Oh, did I mention the product will cost you $801, 75% more than if you bought it at J&R?
Perhaps the merchants have very different reputations for customer service? It doesn't seem that way; PriceGrabber's merchant reviews give TheNerds.net a 4.43 out of 5, J&R Music a 4.62 out of 5, and SupplyStore.com a 4.58 out of 5, so they're about equal.
Will an employee minimize the price or maximize the rebate? Don't count on receipts or other paperwork to tell the whole story. One of the drawbacks of Microsoft Live Search Cashback is that you get no feedback -- neither during the purchase process nor on the receipt -- that a rebate will be applied. In my experiences, confirmations from Microsoft about the cashback rebates have arrived from hours to up to a day after the purchase. The two things are totally disconnected; you can choose a personal e-mail address for your cashback notifications but get the merchant receipt on a company e-mail.
There isn't a lot of logic that would lead a rational person to choose a high-price-high-cashback merchant. Sure, you might pay a few extra dollars to go with a merchant you know and trust, but with merchant ratings it's also a lot easier to tell the dreams from the duds. The cashback process itself will test your tolerance for delayed gratification. You don't have access to the cash until 60 days after the purchase. Once the cash is available, you can have it transferred to a PayPal account, mailed as a paper check, or transferred electronically to a bank account. Whew! If it's your own money, it seems simplest to pick the lowest price right at the start and leave the money in your bank account.
I can think of some ways to reduce abuse of this system. One change that would help is for the merchants to indicate during the checkout process and on the receipt that the purchase is eligible for a cashback rebate. This would improve the experience for consumers, because it would reassure them that the handoff from the Live Search site didn't break in some way. Yet I doubt that will happen, specifically because the current arrangement allows stealth operation.
I don't want anyone to leave with the impression that Microsoft or merchants are doing anything wrong here; it's a question of employee behavior. Merchants are free to set whatever price and rebate percentage they would like; perhaps some merchants are using specific products as loss leaders to get people into the store and jacking up prices on other items they think aren't as price sensitive. Yet this situation has me concerned; the best thing about a product search engine is that it makes finding the best price a simple process. Microsoft's search engine has the potential to pervert that low-price goal by rewarding cashback-seeking behavior. Perhaps companies now need to change their focus from click fraud to cashback fraud?