Pricing Below Cost and Loyalty Discounts: Are They Restrictive and If so When?

Abstract

Abuse of dominance, and in particular price abuses, is the area where the divergence between the US and the EU antitrust enforcement practices is still very significant. The identification of an abuse is in Europe mostly based on the object of the practice, more than on its actual effects. In the US, on the contrary, the emphasis is mainly on realized effects, so that in the absence of visible and tangible effects the Courts tend to conclude that there is no violation. These differences exist also with respect to price abuses. While abuses by excessive pricing have been extremely rare in the EU and non existent in the US, low pricing has been found abusive much more frequently in the EU than in the US. In this area European dominant firms not only are prohibited from effectively excluding competitors, but also from hurting them too much by aggressive pricing strategies. As a consequence the European standard on discounts is weaker and sound economic analysis is largely missing in antitrust enforcement decisions. For opposite reasons some analytical refinements could be introduced also in the US case law, where the emphasis on actual exclusions as the only acceptable proof of an exclusionary practice is probably too rigid. A more sensible approach based on the ability of an equally efficient competitor to match the pricing policy of the dominant firm may be a constructive way forward in both jurisdictions.

After a brief discussion of the European and the US practices on predation, the paper addresses loyalty discounts, providing a comparison of two leading US cases (LePage v. 3M and Concord Boat v. Brunswick) and one EC case (Michelin II). A proposed checklist concludes the paper.