Price-Cost Tests in Antitrust Analysis of Single Product Loyalty Contracts

50 Pages Posted: 6 May 2016

See all articles by Benjamin Klein

Benjamin Klein

University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon

Andres V. Lerner

Compass Lexecon

Date Written: March 8, 2016

Abstract

This article examines the conditions when predatory pricing or exclusive dealing antitrust principles should be the controlling legal standard for the evaluation of single product loyalty discount contracts. Following Meritor, it clarifies what it means for price to be “the predominant mechanism of exclusion” in a loyalty contract, and therefore for price-cost considerations to be a relevant element of the analysis. Loyalty contracts are shown to be a way by which firms efficiently reduce the price of incremental sales, with effects similar to the commonly recognized competitive use of price discounts in Brooke Group. Rather than assuming a loyalty contract involves exclusive dealing, antitrust analysis in all cases requires determining whether a de facto exclusive dealing arrangement has been created where equally efficient rivals cannot compete for contestable sales.

Keywords: Antitrust, predatory pricing, exclusive dealing, loyalty discount contracts

JEL Classification: K21, L12, L42

Suggested Citation

Klein, Benjamin and Lerner, Andres V., Price-Cost Tests in Antitrust Analysis of Single Product Loyalty Contracts (March 8, 2016). Antitrust Law Journal, Vol. 80, No. 3, pp. 631-679 (2016). Available at SSRN: https://ssrn.com/abstract=2775455

Benjamin Klein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

1999 Avenue of the Stars
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Los Angeles, CA 90067-4628
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HOME PAGE: http://www.econ.ucla.edu/people/Faculty/Klein.html

Compass Lexecon ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/bio?id=152

Andres V. Lerner

Compass Lexecon ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-6028
United States
310-728-2026 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/pages/bio.aspx?ID=155

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