A Proposed Test for Separating Pro-Competitive Loyalty Rebates from Anti-Competitive Ones

Abstract

While the granting of rebates is a common commercial practice largely used by dominant and non-dominant firms, the assessment of rebates seems to be one of the most complex and unsettled areas of competition law. In the EU, for instance, the decisional practice of the European Commission and the case-law of the Community courts have been harshly criticized as being unnecessarily strict, following a form-based approach that sits uneasily with modern economic theory. In response to such criticisms, DG COMP published in December 2005 a Discussion Paper, which promotes an effects-based approach to the assessment of rebates. US courts have generally shown greater deference to loyalty rebates adopted by dominant firms, but the case-law remains unsettled, notably in the area of bundled rebates. Against this background, this paper proposes a framework, based on a three-step test, designed to separate pro-competitive rebates from anti-competitive ones. While each of the components of this test is reviewed, a particular emphasis will be placed on the treatment of single product all-unit rebates, which create complex issues discussed at length in the Commission's Discussion Paper and the US Department of Justice's September 2008 Report on Single-Firm Conduct under Section 2 of the Sherman Act.