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Foreclosure, Predation and Competition on the Merits: An Analysis of Bundled Discounts

Gianluca Faella

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

January 8, 2009

The controversial debate on the appropriate standard for the assessment of bundled discounts echoes the difficulties encountered by courts, antitrust authorities and scholars in their ongoing attempt to develop a coherent theoretical framework to distinguish exclusionary conduct from legitimate competition. Currently, there is no general consensus on the treatment of the practice. Even the recent DOJ report on single-firm conduct – withdrawn by the new US administration – and the Commission guidance on Article 82 EC have not definitely clarified the proper approach to bundled discounting. The application of general principles on foreclosure could prevent the use of an effective competitive tool and may result in reduced price competition and protection of inefficient competitors. On the other hand, a total bundle predation-style safe harbor would not detect above-cost bundled discounts that are capable of excluding or limiting the competitive capacity of equally efficient rivals. The US discount allocation test aims at tempering the excesses of the two above-mentioned approaches, but it is too simplistic, does not fit most actual cases and may be both over-deterrent and under-deterrent. The test proposed by the Commission guidance may give rise to similar inconveniences, although it is more likely to be over-deterrent. This paper proposes a refined cost-based test, aimed at establishing whether an equally efficient rival could reasonably compete for the (contestable portion of demand for the) product(s) reasonably open to competition. This test is based on the idea that a practice should be considered a legitimate form of competition on the merits if, notwithstanding the possible existence of one or more competitive advantages that cannot be reasonably replicated or overcome by rivals in an acceptable time frame, a hypothetical competitor that is equally efficient under all remaining aspects could react to the dominant firm’s behavior through a conduct that would benefit consumers. However, in case of complex pricing policies, cost-based tests are imperfect and approximate tools, which may provide useful evidence and indications as to the risk of exclusion of equally efficient rivals, but cannot usually function as a safe harbor for dominant firms. A cost-based test can only be part of a comprehensive assessment of the likely effects of the practice. When the application of an appropriate cost-based test turns out to be too complex and uncertain or, in any case, the test does not provide sufficiently complete and reliable indications, a proper allocation of the burden of proof could reduce the risk of type I and type II errors.

Number of Pages in PDF File: 36

Keywords: Antitrust, Monopolization, Abuse of dominant position, Bundling, Bundled discounts, Bundled rebates

JEL Classification: K21, L41, L42

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Date posted: January 9, 2009 ; Last revised: September 30, 2009

Suggested Citation

Faella, Gianluca, Foreclosure, Predation and Competition on the Merits: An Analysis of Bundled Discounts (January 8, 2009). Available at SSRN: https://ssrn.com/abstract=1324607 or http://dx.doi.org/10.2139/ssrn.1324607

Contact Information

Gianluca Faella (Contact Author)
Cleary Gottlieb Steen & Hamilton ( email )
00390669522690 (Phone)
University of Siena ( email )
Siena, SIena
University of Naples Federico II ( email )
via Cinthia, 4
Naples, Caserta 80126
LUISS Guido Carli University ( email )
Siena, SIena
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