Loyalty/Requirement Rebates and the Antitrust Modernization Commission: What is the Appropriate Liability Standard?

Abstract:     
I discuss and assess the various standards for establishing liability for loyalty discounts offered under a requirement contract. I find that the standard proposed by the Antitrust Modernization Commission is likely to result in many cases of violation that are not caught. The safe harbor defined by the AMC would permit activity that is in fact anticompetitive. I propose instead a structured rule of reason test that relies on consumers' surplus comparisons under the loyalty/requirement practice and the but-for world. The proposed standard does not have a safe harbor based on a price/cost comparison because such comparisons do not generally correspond to consumers' surplus comparisons.

Number of Pages in PDF File: 29

Keywords: bundling, loyalty discounts, requirement contracts, monopolization, antitrust, monopoly

JEL Classification: K21, D42, D43

Accepted Paper Series