Article 82 Rebates : Four Common Fallacies

In light of the ongoing review of the policy on the application of Article 82 EC by the European Commission, this paper first describes how to calculate potential foreclosure effects and then sets out some common fallacies to be found in the discussion of rebate schemes. The paper discusses the averaging fallacy in calculating foreclosure in rebate schemes, addresses the ex post fallacy, according to which demand realizations ex post are evidence for determining foreclosure and the coverage fallacy according to which low market coverage implies a lack of foreclosure. The discussion of the case-by-case fallacy focuses on the idea that even if a subset of rebate schemes could be justified by efficiencies, alternative pricing instruments may have the same beneficial effects without negative effect on competition and even a flat out prohibition may therefore not reduce but increase welfare. I conclude with a more general discussion of the role of economic analysis in competition policy