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Antitrust by Analogy: Developing Rules for Loyalty Rebates and Bundled Discounts

 |  January 22, 2014

Posted by Social Science Research Network

Antitrust by Analogy: Developing Rules for Loyalty Rebates and Bundled Discounts – Sean Gates (Morrison & Foerster LLP)

ABSTRACT: Antitrust law has become dominated by economics. With its chief end the enhancement of economic welfare through the preservation of the competitive process, antitrust jurisprudence now seeks to follow consensus economic theory. Antitrust liability rules are thus based on prevailing economic views.

But what are courts to do when there is no consensus on the economics underlying particular conduct? How can the courts rationally develop antitrust liability rules when the economic analysis of certain conduct is unsettled?

That is the case with loyalty rebates and bundled discounts, through which price rebates or discounts are conditioned on the customer purchasing a certain percentage of its requirements or multiple products from the seller. There is no established framework of analysis for conduct involving rebates. There is no long line of cases. There is no “great weight of scholarly opinion” presenting a consensus view. Economists and scholars simply disagree on when such practices may harm competition.

Rebates thus offer a rare window into the development of antitrust jurisprudence in the absence of a consensus economic theory. Existing case law presents three analogies — exclusive dealing, tying, and predatory pricing. Judicial decision-making regarding rebates is thus a study in analogical reasoning. But what is sorely missing from the current jurisprudence are in-depth analyses of the efficacy of these analogies. Fuller examination of the three analogies reveals flaws in each. But this examination also points to a better solution.