The antitrust treatment of loyalty discounts and rebates in the EU competition law: in search of an economic approach and a theory of consumer harm

Samà, Danilo (2012): The antitrust treatment of loyalty discounts and rebates in the EU competition law: in search of an economic approach and a theory of consumer harm.

Abstract

In the paper, the fundamental question is under what conditions loyalty discounts and rebates adopted by a dominant firm cause anti-competitive effects. Fidelity schemes, although extremely frequent in the market, if applied by a dominant firm, are likely to be judged as illegal per se, as demonstrated by the EU case-law delivered so far and the severe scrutiny reserved by the national competition authorities. As a result, the paper first provides an analytical overview of loyalty structures, focusing in particular on retroactive rebates, and elaborates on important economic implications, such as the lock-in and the suction effect. The work then discusses the novelties introduced by the Guidance Paper on the Application of Art. 102 of the TFEU, which calls for an effects-based analysis of exclusionary abuses. Therefore, after an in-depth evaluation of the as-efficient competitor test, the new approach of the European Commission towards loyalty discounts and rebates is discussed in details with reference to a controversial antitrust case recently examined at EU level (Tomra). The paper finally proposes a systematic economic framework for analysing the effects, and therefore the legality, of fidelity schemes, in the light of a consistent theory of consumer harm.

• Item Type: MPRA Paper
• Language: English
• Keywords: fidelity discounts, loyalty rebates, abuse of dominant position, as-efficient competitor test, consumer harm, exclusive dealing, foreclosure, monopolization, nonlinear pricing, predation, Tomra
• Subjects: K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts

References

Ahlborn, C., Bailey, D. (2006), Discounts, Rebates and Selective Pricing by Dominant Firms: A Trans-Atlantic Comparison, in Marsden, P. (eds.), Handbook of Research in Trans-Atlantic Antitrust, Edward Elgar, Cheltenham, United Kingdom and Northampton, United States.

De La Mano, M. (2011), Competitive Effects of Rebates: Seeking Economic and Legal Consistency, in Rebates Law Revisited? The General Court’s Ruling in Tomra v. Commission, Global Competition Law Centre, Brussels, Belgium, 21 January 2011.

Faella, G. (2008), The Antitrust Assessment of Loyalty Discounts and Rebates, Journal of Competition Law & Economics, Vol. 4, Issue 2, Oxford University Press, Oxford, United Kingdom.

Federico, G. (2005), When are Rebates Exclusionary?, European Competition Law Review, Vol. 26, No. 9, Sweet & Maxwell, London, United Kingdom.

Federico, G., Regibeau, P. (2010), Exclusionary Discounts under Article 102: In Search of the Right Theory of Harm, in Competition with Non-Linear Pricing and Loyalty Discounts, Centre for Law and Economics, Alma Mater Studiorum - Università di Bologna, Bologna, Italy, 6 November 2010.

Federico, G. (2011), The Antitrust Treatment of Loyalty Discounts in Europe: Towards a more Economic Approach, Journal of European Competition Law & Practice, Vol. 2, Issue 3, Oxford University Press, Oxford, United Kingdom.

Federico, G. (2011), Tomra v Commission of the European Communities: Reversing Progress on Rebates?, European Competition Law Review, Vol. 32, No. 3, Sweet & Maxwell, London, United Kingdom.

Greenlee, P., Reitman, D. (2005), Competing with Loyalty Discounts, U.S. Department of Justice, Economic Analysis Group, Discussion Paper 04-2, Washington D.C., United States.

Kallaugher, J., Sher, B. (2004), Rebates Revisited: Anti-Competitive Effects and Exclusionary Abuse under Article 82, European Competition Law Review, Vol. 25, No. 5, Sweet & Maxwell, London, United Kingdom.

Lang, J.T., Renda, A. (eds.) (2009), Treatment of Exclusionary Abuses under Article 82 of the EC Treaty, Centre for European Policy Studies, Brussels, Belgium.

Maier-Rigaud, F.P. (2006), Article 82 Rebates: Four Common Fallacies, European Competition Journal, Vol. 2, No. 2, Hart Publishing, Oxford, United Kingdom and Portland, United States.

Maier-Rigaud, F.P., Vaigauskaite, D. (2006), Prokent/Tomra, A Textbook Case? Abuse of Dominance under Perfect Information, EC Competition Policy Newsletter, Issue 2, European Commission, Brussels, Belgium.

O’Donoghue, R., Padilla, A.R. (2006), The Law and Economics of Article 82 EC, Hart Publishing, Oxford, United Kingdom and Portland, United States.

Office of Fair Trading (2005), Selective Price Cuts and Fidelity Rebates, Economic Discussion Paper, A report prepared for the Office of Fair Trading by RBB Economics, London, United Kingdom.

RBB Economics (2007), Tomra: Rolling Back Form-Based Analysis of Rebates?, RBB Brief 21, available on the web-site www.rbbecon.com.

Rigaud, F.P. (2005), Switching Costs in Retroactive Rebates - What’s Time Got to Do with It?, Competition Law Review, Vol. 26, No. 5, Sweet & Maxwell, London, United Kingdom.

Ryan, A. (2011), Case T-155/06 Tomra v. Commission. What exactly are the Rules?, in Rebates Law Revisited? The General Court’s Ruling in Tomra v. Commission, Global Competition Law Centre, Brussels, Belgium, 21 January 2011.

Sher, B. (2009), Leveraging Non-Contestability: Exclusive Dealing and Rebates under the Commission’s Article 82 Guidance, Antitrust Chronicle, Vol. 2, Issue 1, Competition Policy International, Boston, United States.