Journal of Competition Law and Economics Advance Access published online on March 19, 2008
Journal of Competition Law and Economics, doi:10.1093/joclec/nhn001
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BUNDLED REBATES AS EXCLUSION RATHER THAN PREDATION
Correspondence: * Professor, Public Policy and Economics, University of Maryland Baltimore County, and Senior Fellow, Resources for the Future. E-mail: brennan{at}umbc.edu
Prevailing tests for whether bundled rebate programs are anticompetitive, including the recent Antitrust Modernization Commission Recommendation 17, are based on whether some incremental or total price in the rebate program is less than some appropriate incremental cost. This test presumes that rebate programs, and exclusionary conduct more generally, should be treated like predation cases. It errs in treating the buyers as end users rather than competing complement providers, as they are in all of the leading U.S. and Canadian cases. Rebate programs should be assessed on the basis of whether they raise the price of a complement, such as retailing or distribution. This suggests a different two-prong test: Does the rebate cover a competitively significant share of a complement market? If so, what effect does the rebate have on the price that rivals have to pay to obtain the complement? This test allows the use of merger guideline approaches, ignores (for the most part) cost comparisons, and does not require prior dominance in the primary market. An assessment of this approach examines when practices are exclusionary, compares rebates to exclusive dealing, distinguishes exclusionary from predatory rebates, critiques "profit sacrifice" approaches to exclusion, and proposes share-based remedies to recognize vertical efficiencies.