Working Paper: CEPR ID: DP10550
Authors: Chiara Fumagalli; Massimo Motta
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.
Keywords: exclusive dealing; inefficient foreclosure; market-share discounts
JEL Codes: K21; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loyalty discounts (L42) | higher exclusionary potential (C24) |
| profit sacrifice is present in exclusive dealing (D43) | profit sacrifice is not exclusive to predation (L21) |
| EU's approach to loyalty rebates (L42) | does not require economic analysis (R59) |
| US's effects-based approach (H56) | requires economic analysis (O22) |
| price-cost test (D40) | should not be uniformly applied to loyalty rebates (L42) |