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

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Economics has come to dominate antitrust jurisprudence. Preserving and enhancing economic welfare (in one form or another) is now the conceded goal of antitrust. Accordingly, economic analysis permeates antitrust scholarship, drives agency decisions, and is the basis of modern judicial decisions. The thought of developing an antitrust liability rule without a well-considered underlying economic theory is anathema. The mention of such a possibility brings pursed lips, condescending looks, and hushed ridicule. But what should a court do when there is no consensus on the underlying economic theory? That is the situation for the antitrust treatment of loyalty rebates and bundled discounts.

The antitrust case law offers little guidance. Many of the critical debates in antitrust law have centered on whether the prevailing framework of analysis for particular competitive conduct should be changed in light of economic analyses. In Continental T.V., Inc. v. GTE Sylvania Inc., for instance, the Supreme Court was asked to revisit its prior holding that vertical nonprice restraints were “so obviously destructive of competition” as to merit per se condemnation. This holding had become “the subject of continuing controversy and confusion, both in the scholarly journals and in the federal courts.” As the Court acknowledged, the “great weight of scholarly opinion [was] . . . critical of the decision” and lower courts had sought to limit the holding. Concluding that its prior holding rested on “formalistic line drawing” rather than economic effects, the Court overruled its prior decision, rejected the use of per se analysis for vertical non-price restrictions, and held that the rule of reason should apply instead.

Originally published in Antitrust Law Journal, Vol. 79, Iss. 1 on January 9, 2014.

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