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The error costs of loyalty discounts

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Prosecuting loyalty rebates—and other price-related antitrust behavior—entails significant pitfalls for antitrust policymakers. Low prices are one of the key benefits antitrust law seeks to promote. And yet, when it comes to low prices, anticompetitive strategy is almost indistinguishable from strong competition. There is thus a significant risk that poorly tailored antitrust rules would chill firms’ incentives to compete. These difficulties should notably prompt antitrust policymakers and courts to reject largely unworkable concepts, such as the notion of non-contestable market segments (in bundled rebates cases) and firms’ intent to foreclose competitors.

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