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Business Articles Awards > Economics

Competitive Discounts and Antitrust Policy

Kevin M. Murphy, Edward A. Snyder, and Robert H. Topel, Oxford Handbook of International Antitrust Economics, Vol. 2, Oxford University Press, 2014

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This chapter deals with a broad class of quasi-exclusive, vertical agreements in which a seller conditions price discounts on the specified quantity or share of a product line that the buyer commits to purchase from the seller. We refer to such agreements as “quantity commitment discounts” (QCDs), though they are often referred to as “loyalty discounts,” as they appear to exchange price concessions for a buyer’s loyalty to a particular brand. Both economic theory and the law recognize that in some cases pricing and business practices of sellers may harm or weaken rivals and might also reduce social welfare. The classic example is predatory pricing, in which a seller temporarily prices below incremental cost with the explicit goal of driving rivals from the market. Common and typically procompetitive business practices designed to increase sales—including forms of quantity-related discounts, nonlinear pricing, and various vertical restrictions on distributors—similarly might in certain circumstances harm competition by harming competitors (see, e.g., Schwartz and Vincent 2008; Wilson 1993).

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