Fidelity-inducing discounts

Fidelity-inducing discounts are a possible source of exclusionary abuse of a dominant position prohibited by Article 82, the Competition Act 1998 and similar legislation.

We can advise parties to disputes relating to alleged exclusionary discounts on how they might be able to put their case or develop relevant economic evidence to support or refute the analyses outlined below.

Before a dispute has erupted, we can advise potential complainants or potential recipients of complaints about the validity of concerns raised, the steps that might be taken to ensure compliance, or the prospects for a successful complaint or claim.

*Franck Latrémolière

*Nicholas Francis

Economic analysis of exclusionary discounts allegations

A key question for the economic analysis of alleged exclusionary discounts will be whether the discount is fidelity-inducing, i.e. whether it tends to tie customers to the provider offering the discount. Answering this question will usually involve an analysis of the financial incentives given by the discount structure.

If the discount structure has fidelity-inducing features, the analysis needs to consider whether the object or effect of these features is to exclude competitors from a relevant market, or whether these features are in fact justified by legitimate business objectives e.g. cost structures.

To come within the scope of the prohibition on abuse, the person offering the discount must hold a dominant position (i.e. face no effective competition).

Some discounts can also be attacked under Article 81, irrespective of the existence of a dominant position, where there is evidence that they are a means to give effect to an anti-competitive agreement.

We are familiar with the interplay of these various tests and the ways in which they might be applied in practice.

Reckon LLP31 Southampton Row, London, WC1B notices
Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.