Duhaime's Law Dictionary


Fidelity Rebate Definition:

Offering loyalty rebate program to select customers.

Related Terms: Predatory Pricing

In their law book Competition and Antitrust Law, the authors write:

"Generally, fidelity rebates are rewards or discounts given to customers who purchase all or a specified portion of their requirements for a given product or service from a dominant firm....

"In general, the U.S. has refrained from challenging or interfering with dominant firms employing fidelity rebate schemes."

The suggestion has been made that such conduct may be contrary to §79 of the Canadian Competition Act if it has the result of "lessening competition substantially in a market".

In Virgin Atlantic Airways v. British Airways, Justice Cardamone of the United States Court of Appeals found that British Airway's incentive agreements with corporate clients and travel agencies British Airways was not illegal under the antitrust statute because:

"Virgin has ... failed in its burden to show below cost pricing... A factfinder would necessarily conclude that the decision to offer incentives was nothing more than an attempt to generate increased business on the whole by limiting profitability on selected sales.

"Low prices are a positive aspect of a competitive marketplace and are encouraged by the antitrust laws. Because cutting prices to increase business is the very essence of competition, mistaken inferences would be especially costly and would `chill the very conduct the antitrust laws are designed to protect. As long as low prices remain above predatory levels, they neither threaten competition nor give rise to an antitrust injury."

Writing in the Houston Journal of International Law, Todd Iverton described fidelity rebates and the distinction between the tolerance in the US versus the position of the European Commission competition bureau:

"A fidelity rebate is a rebate by a manufacturer to a distributor for compliance with an exclusive dealing agreement.

"The treatment of fidelity rebates and discounts by dominant firms illustrates the difference between United States and EC approaches. The EC proscribes fidelity rebates by a dominant firm because they distort competition, and discounts are disallowed because they restrict consumers' freedom of choice and place undue hardship on competitors. The United States law, however, allows rebates and discounts if they can be considered pro-competitive by sustained lower prices to consumers."

REFERENCES:

  • Competition Act, RSC 1985, c C-34
  • Facey, Brian and Assaf, Dany, Competition and Antitrust Law, 3rd Ed. (Toronto: LexisNexis Butterworths, 2006), page 251
  • Overton, Todd R., Substantive Distinction between United States Antitrust Law and the Competition Policy of the European Community: A Comparative Analysis of Divergent Policies, 13 HJIL 321 (1990-1991)
  • Virgin Atlantic Airways v. British Airways PLC, 257 F. 3d 256

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