Article 82 Rebates: Four Common Fallacies

"The Commission is currently considering a review of its policy on the application of Article 82 EC and has recently published a staff discussion paper setting out a more economics-based line that should stimulate increased discussion of Article 82 rebate schemes. In light of the ongoing discussion on rebates and the almost complete lack of economic literature, the aim of this paper is twofold. First, it presents a basic framework for calculating the potential foreclosure in a simple individualised rebate scheme. Secondly, four common fallacies presented in the literature on rebates and competition cases are discussed.

Before discussing the four fallacies, I introduce some general remarks about demand in section C. The first fallacy, which revolves around off-equilibrium assumptions that result in an incorrect assessment of rebate schemes, is discussed in section D. Section E discusses the role that ex post evidence should play in the analysis of rebate schemes. Section F discusses the question of coverage, while section G questions the general belief that rules in competition policy are incompatible with an economic effects-based analysis and the idea that weighing the competitive harm of a rebate scheme with its efficiencies is a relevant approach from a competition policy point of view. In the conclusion (section H) the paper raises some more fundamental questions concerning Article 82 rebate schemes and the role of economics in devising sound competition policy."