Loyalty Rebates: An Assessment of Competition Concerns and a Proposed Rule of Reason

David Spector

No 514, CEPREMAP Working Papers (Docweb) from CEPREMAP

Abstract: Like most pricing practices, loyalty rebates may benefit or harm consumers according to the circumstances. In this essay, I review the pro- competitive and anticompetitive motives for loyalty rebates. Several conclusions emerge. First, every particular type of loyalty rebates can in some circumstances be pro-competitive. There is therefore little basis for a per se prohibition, even restricted to a particular category of suspicious-looking schemes. Second, dominant firms willing to engage into an exclusionary strategy may find that cleverly fine-tuned pricing schemes involving loyalty rebates possess several advantages over simple predatory pricing strategies: they can achieve exclusion at a lower cost, be more credible, and erect a permanent barrier to entry without any need for a recoupment period. Loyalty rebates thus deserve the scrutiny with which they have been gratified lately. I conclude by proposing a structured rule of reason for the antitrust handling of loyalty rebates cases.

Keywords: rebates; nonlinear pricing; exclusionary strategies; predatory pricing (search for similar items in EconPapers)
JEL-codes: L42 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-10
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:cpm:docweb:0514

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