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On the Use of Price-Cost Tests in Loyalty Discounts: Which Implications from Economic Theory?

By  |  April 21, 2015

Posted by Social Science Research Network

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    On the Use of Price-Cost Tests in Loyalty Discounts: Which Implications from Economic Theory? Chiara Fumagalli (Bocconi University) & Massimo Motta (Universitat Pompeu Fabra)

    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.