The Antitrust Assessment of Loyalty Discounts and Rebates

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 of lessening 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 intervention in cases of seriously exclusionary discount policies, while limiting the unnecessary prohibition of effective forms of price competition.

Keywords: K21, L1, L2, L11, L22