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

Listed author(s):
  • Spector, David

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.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 0514.

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Length: 29 pages
Date of creation: Oct 2005
Handle: RePEc:cpm:docweb:0514
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