Journal of Competition Law and Economics Advance Access originally published online on March 21, 2008
Journal of Competition Law and Economics 2008 4(2):375-410; doi:10.1093/joclec/nhn004
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THE ANTITRUST ASSESSMENT OF LOYALTY DISCOUNTS AND REBATES
JEL: K21, L1, L2, L11, L22
Loyalty discounts lie at the heart of the debate on single-firm conduct, probably the most controversial issue in contemporary antitrust practice. Under particular conditions, loyalty discounts may have an exclusionary effect. However, they constitute a classical form of price competition, an effective commercial tool, and a way to solve coordination problems in the production chain. In the United States, the fear of lessening price competition has led to a very strong presumption of legality of discounts, provided that they are not predatory or bundled. In the EU, the tendency to induce loyalty, if not a mere intent to exclude rivals, is traditionally deemed to be enough to justify the prohibition of the practice. In the paper, it is submitted that the opposite (almost) per se rules prevailing on the two sides of the Atlantic should be set aside. A detailed analysis, based on a suitable price–cost test and a careful assessment of the impact of the practice on the competitive capacity of minor rivals and on the overall degree of competition in the market concerned, would allow intervention in cases of seriously exclusionary discount policies, while limiting the unnecessary prohibition of effective forms of price competition.
* Associate, Cleary Gottlieb Steen & Hamilton LLP; Research Scholar, LE Lab—Law and Economics Lab. E-mail: gfaella{at}luiss.it. A previous version of this paper was delivered at the Third Annual Conference of the Italian Society of Law and Economics (ISLE), Luigi Bocconi University, Milan, November 9–10, 2007. The author wishes to thank Professor Roberto Pardolesi for his helpful comments on previous versions of the paper. Part of the research was done when the author was a Research Scholar at the New York Law School, New York, NY.