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The Antitrust Assessment of Loyalty Discounts and Rebates

30 Pages Posted: 1 Jan 2008  

Gianluca Faella

Cleary Gottlieb Steen & Hamilton; University of Siena; University of Naples Federico II; LUISS Guido Carli University

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Date Written: October 11, 2007

Abstract

Loyalty discounts lie at the heart of the debate on single firm conduct, probably the most controversial issue in contemporary antitrust practice. Under particular conditions, loyalty discounts may have an exclusionary effect. However, they constitute a classical form of price competition, an effective commercial tool and a way to solve coordination problems in the production chain. In the United States, the fear to lessen price competition has led to a very strong presumption of legality of discounts, provided that they are not predatory or bundled. In the EU, the tendency to induce loyalty, if not a mere intent to exclude rivals, is traditionally deemed to be enough to justify the prohibition of the practice. In the paper, it is submitted that the opposite (almost) per se rules prevailing on the two sides of the Atlantic should be set aside. A detailed analysis, based on a suitable price-cost test and a careful assessment of the impact of the practice on the competitive capacity of minor rivals and on the overall degree of competition in the market concerned, would allow to intervene in cases of seriously exclusionary discount policies, while limiting the unnecessary prohibition of effective forms of price competition.

Keywords: Antitrust, Abuse of dominant position, discounts, rebates

JEL Classification: K21, L12, L41, L42

Suggested Citation

Faella, Gianluca, The Antitrust Assessment of Loyalty Discounts and Rebates (October 11, 2007). Available at SSRN: https://ssrn.com/abstract=1079504 or http://dx.doi.org/10.2139/ssrn.1079504

Gianluca Faella (Contact Author)

Cleary Gottlieb Steen & Hamilton ( email )

Rome
Italy
00390669522690 (Phone)

University of Siena ( email )

Siena, SIena
Italy

University of Naples Federico II ( email )

via Cinthia, 4
Naples, Caserta 80126
Italy

LUISS Guido Carli University ( email )

Siena, SIena
Italy

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