The error costs of loyalty discounts

Prosecuting loyalty rebates—and other price-related antitrust behavior—entails significant pitfalls for antitrust policymakers. Low prices are one of the key benefits antitrust law seeks to promote. And yet, when it comes to low prices, anticompetitive strategy is almost indistinguishable from strong competition. There is thus a significant risk that poorly tailored antitrust rules would chill firms’ incentives to compete. These difficulties should notably prompt antitrust policymakers and courts to reject largely unworkable concepts, such as the notion of non-contestable market segments (in bundled rebates cases) and firms’ intent to foreclose competitors.

I. Introduction 1. Anticompetitive (that is, consumer-harming) strategies capable of foreclosing even efficient competitors are difficult—often impossible—to distinguish from vigorous competition (which benefits consumers). Courts are compelled to rely on a limited set of observable parameters to infer whether a firm’s behavior falls under one or the other category. This process entails significant pitfalls. [1] 2. When it comes to allegedly anticompetitive lowering of prices—predation, discounts, and rebates—low prices themselves are the posited mechanism for anticompetitive foreclosure and thus a key component of the liability regimes pertaining to pricing practices. Yet low prices are also precisely the consumer benefit that antitrust law ordinarily seeks to preserve, especially when

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Authors

  • International Center for Law & Economics (Portland)
  • International Center for Law & Economics (Portland)

Quotation

Dirk Auer, Geoffrey Manne, The error costs of loyalty discounts, February 2022, Concurrences N° 1-2022, Art. N° 105182

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