Loyalty rebates and effects-based analysis: Skal loyalitetsskabende rabatter tildelt af en dominerende virksomhed, dømmes som misbrug uden en analyse af deres effekt på markedet?

Rita Sulumova & Charlotte Roy Casparij Kirkegaard

Student thesis: Master thesis


EU Case law has established a broad and inexact definition of loyalty rebates respectively the price- and non price-based conduct, so it can be seen as the Court has chosen a more accessible and less costly form-based approach, where it is deemed sufficient that conduct alone has the ability to distort competition, without analyzing an actual effect on the market, in the light of art. 102 TEUF. This approach does not take any positive effects on the market or the consumer into account, such as lower prices, better product information, better services, new products and a reduced likelihood of "double marginalization", why it fails to acknowledge that loyalty rebates can be applied as a profitmaximising strategy. The economic analysis has shown that loyalty rebates’ exclusionary effect depends on certain conditions; such as competitors' cost structure, demand elasticity, the level of switching costs and the existence of an unavoidable trading partner, which by itself has the ability to enhance the exclusionary effect. Furthermore it seems crucial to analyze whether the loyalty rebates can bee seen as a credible threat towards equally efficient competitors and whether the dominant undertaking can sufficiently limit the customers’ freedom of choice among sources of supply, for which reason the behaviour can lead to an exclusionary effect. Also, it is substantial to analyze customers’ incentives and likelihood to accept the loyalty-inducing agreement, which will determine whether there at all can be created loyalty. Commission suggests in their Guidance Paper an effects-based analysis, AEC-test, that deduces the price an equally efficient competitor must be able to offer customers in order to compete against the dominant undertaking, although the thesis concludes that the AEC-test is inapplicable, since it does not take the non price-based conduct into consideration. The findings have shown that loyalty rebates can enhance pro-competitive effects and that this conduct not always will be exclusionary, why the thesis argues that the loyalty rebates should be interpreted in the light of competition on the merits. Hereby, the thesis finds it to be misleading to deem loyalty discounts to per se have the "ability" to exclude. This thesis concludes that there must be an effects-based analysis of the loyalty-inducing rebates granted by the dominant undertaking. However, the assessment of the loyalty discounts shall not only be based on the AEC-test, as it seems insufficient as a standalone tool. On this basis, competition authorities shall take the positive effects on consumer welfare, the intention behind and the overall circumstances of the conduct into account in order to reduce the likelihood of type I and type II errors in the rulings regarding loyalty rebates.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2015
Number of pages140