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Discussion Paper Details

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Title: On the use of price-cost tests in loyalty discounts: Which implications from economic theory?

Author(s): Chiara Fumagalli and Massimo Motta

Publication Date: April 2015

Keyword(s): exclusive dealing, inefficient foreclosure and market-share discounts

Programme Area(s): Industrial Organization

Abstract: Recent cases in the US (Meritor, Eisai) and in the EU (Intel) have revived the debate on the use of price-cost tests in loyalty discount cases. We draw on existing recent economic theories of exclusion and develop new formal material to argue that economics alone does not justify applying a price-cost test to predation but not to loyalty discounts. Still, the latter contain features (they reference rivals and allow to discriminate across buyers and/or units bought) that have a higher exclusionary potential than the former, and this may well warrant closer scrutiny and more severe treatment from antitrust agencies and courts.

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Bibliographic Reference

Fumagalli, C and Motta, M. 2015. 'On the use of price-cost tests in loyalty discounts: Which implications from economic theory?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10550