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

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  • Fumagalli, Chiara
  • Motta, Massimo

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.

Suggested Citation

  • Fumagalli, Chiara & Motta, Massimo, 2015. "On the use of price-cost tests in loyalty discounts: Which implications from economic theory?," CEPR Discussion Papers 10550, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10550
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    Keywords

    exclusive dealing; inefficient foreclosure; market-share discounts;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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