DP10550 On the use of price-cost tests in loyalty discounts: Which implications from economic theory?

Author(s): Chiara Fumagalli, Massimo Motta
Publication Date: April 2015
Keyword(s): exclusive dealing, inefficient foreclosure, market-share discounts
JEL(s): K21, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10550

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.