Exclusive Dealing: Loyalty Discounts Should Always Be Legal, Except in the Case of High Entry Barriers

Abstract

Recently, there has been growing literature on exclusive dealing and loyalty discounts. I posit that any exclusive dealing should be per se illegal, except in the case of loyalty discounts, as it excludes competition at least for the time of its duration. Contrary to the legal and economic literature, I state that loyalty discounts should always be legal, except in the case of high entry barriers (or high barriers to expansion). If high entry barriers (or high barriers to expansion) occur, I confirm that the US antitrust jurisprudence is appropriate: unless a reference market is foreclosed about over 40%, loyalty discounts are legal. Owing to the legal solution I propose in this article, that enhanced economic results may be achieved: competition becomes intensified, and any exclusion of rivals that may arise would result from a strong competitive process.