I actually talked to one of the Bing developers about it and it's a pretty slick deal.
The retailers give the discounts to the customer in exchange for ad credits on Microsoft's ad network.
Although this seems like Microsoft's just taking the hit (in terms of lost ad revenue), this is a pretty smart move, saying that:
1. Retailers would become accustomed to using Microsoft's ad network, and spend more $$ on it vs. Google.
2. Since the ads are on an "auction" model, the prices will be bidded up, resulting in more $$ for Microsoft.