Bundled Rebates as Exclusion Rather than Predation

Posted: 17 Jun 2008

See all articles by Tim Brennan

Tim Brennan

University of Maryland, Baltimore County - Department of Public Policy; Resources for the Future

Date Written: June 2008

Abstract

Prevailing tests for whether bundled rebate programs are anticompetitive, including the recent Antitrust Modernization Commission Recommendation 17, are based on whether some incremental or total price in the rebate program is less than some appropriate incremental cost. This test presumes that rebate programs, and exclusionary conduct more generally, should be treated like predation cases. It errs in treating the buyers as end users rather than competing complement providers, as they are in all of the leading U.S. and Canadian cases. Rebate programs should be assessed on the basis of whether they raise the price of a complement, such as retailing or distribution. This suggests a different two-prong test: Does the rebate cover a competitively significant share of a complement market? If so, what effect does the rebate have on the price that rivals have to pay to obtain the complement? This test allows the use of merger guideline approaches, ignores (for the most part) cost comparisons, and does not require prior dominance in the primary market. An assessment of this approach examines when practices are exclusionary, compares rebates to exclusive dealing, distinguishes exclusionary from predatory rebates, critiques profit sacrifice approaches to exclusion, and proposes share-based remedies to recognize vertical efficiencies.

Keywords: K21, L1, L11, L12

Suggested Citation

Brennan, Tim, Bundled Rebates as Exclusion Rather than Predation (June 2008). Journal of Competition Law and Economics, Vol. 4, Issue 2, pp. 335-374, 2008, Available at SSRN: https://ssrn.com/abstract=1146720 or http://dx.doi.org/nhn001

Tim Brennan (Contact Author)

University of Maryland, Baltimore County - Department of Public Policy ( email )

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Resources for the Future ( email )

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