Discounts and Exclusions

23 Pages Posted: 19 Aug 2005

See all articles by Herbert Hovenkamp

Herbert Hovenkamp

University of Pennsylvania Law School; University of Pennsylvania - The Wharton School; University College London

Date Written: August 2005

Abstract

The discounting practices of dominant firms has emerged as one of the most problematic areas of private antitrust enforcement against single-firm conduct. The most difficult discount practices to assess are bundled, or multi-product discounts in situations where no significant rival produces every product that is included in the bundle. A debate has emerged over whether such discounts are properly assessed under a legal test that analogizes them to predatory pricing or to tying. Defendants typically prefer predatory pricing analogies, requiring a showing that the price of the assembled bundle was below a relevant measure of cost, such as marginal cost or average variable cost. Plaintiffs typically want a standard that compares bundled discounts to tying arrangements. This paper argues that bundled discounts are best analogized to tying arrangements. However, because the practice is a discount and not a contractual requirement linking two products, a cost test is nevertheless necessary to determine whether the two products are really tied together in a way that has the potential to exclude rival firms. Once that threshold requirement has been met, then the case should proceed under the same analysis that is usually applied to tying cases analyzed under the rule of reason, except that a few additional defenses must be allowed when the tie takes the form of a discount.

Keywords: Antitrust, Exclusionary Practice, Monopolization, Discounts, Package Discount, Tying, Predatory Pricing

JEL Classification: D42, K21, l12

Suggested Citation

Hovenkamp, Herbert, Discounts and Exclusions (August 2005). U Iowa Legal Studies Research Paper No. 05-18, Available at SSRN: https://ssrn.com/abstract=785966 or http://dx.doi.org/10.2139/ssrn.785966

Herbert Hovenkamp (Contact Author)

University of Pennsylvania Law School ( email )

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University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
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University College London ( email )

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London, WC1E 6BT
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