Antitrust Law Daily Wrap Up, CONFERENCES: FTC and DOJ to hold workshop on Conditional Pricing Practices, (May 6, 2014)

The FTC has announced today that the agency and Department of Justice (DOJ) Antitrust Division will hold a one-day joint public workshop on June 23, 2014, to explore the economic and legal analysis of conditional pricing practices among firms in a supply chain. The workshop, entitled “Conditional Pricing Practices: Economic Analysis and Legal Policy Implications,” will focus on conditional pricing arrangements—practices in which prices are explicitly or effectively contingent on commitments to purchase or sell a specified share or volume of a single product or a mix of multiple products—such as loyalty or bundled pricing.

A principal goal of the workshop will be to advance the economic understanding of the potential harms and benefits of conditional pricing practices and to reexamine their treatment under the antitrust laws.

Conditional pricing practices, similar to other distribution strategies, may have anticompetitive effects and efficiency benefits. For example, if a loyalty or share discount induces buyers to make most or all of their purchases from the seller, under some circumstances it might deprive the seller’s rivals of sufficient access to efficient distribution or production and facilitate the seller’s exercise of market power.

Similarly, bundled pricing can deny efficiencies of scale or scope to rivals that do not produce all of the products in the bundle. Supporters of such arrangements contend, however, that as long as these practices involve prices that are above some measure of cost, they are likely to reflect beneficial price competition, and that restraining their use will inhibit robust competition.

The legal treatment of conditional pricing practices has traditionally fallen into two categories. The first focuses on pricing and applies various forms of a price-cost test. The second examines whether a particular pricing practice reduces competition by raising the costs of rival firms or otherwise impeding their ability or incentives to expand or achieve efficiencies. These effects on competition could be comparable to those resulting from other distribution practices, such as exclusive dealing or tying.

Economic Learning. Workshop participants will examine both theoretical and empirical economic learning regarding these arrangements and consider several questions, including: What are the economic theories of harm and benefit?; What do the economic and business-strategy literatures tell us about how and with what frequency firms employ conditional pricing practices?; Under what circumstances are the various conditional pricing strategies likely to lead to competitive harm? ; In what settings might conditional pricing practices allow firms to realize efficiencies? ; and To what degree might less-restrictive alternatives enable firms to achieve those same efficiencies?

Law and Policy Issues. Participants also will consider how to integrate the economic learning with the relevant legal standards. To that end, the workshop will explore the current legal standards in the United States and abroad and will consider a series of questions, including: How has the treatment of various conditional pricing practices evolved in the courts?; What are the practical challenges of proof that the courts and litigants have confronted when attempting to apply the different legal standards?; Do price-cost tests provide certainty and predictability to firms?; Under the various standards, how might misalignment with theory and challenges of proof threaten to under-deter harmful practices or over-deter beneficial conduct?; and How do the various legal standards, if at all, affect primary conduct?

The FTC and DOJ are interested in receiving comments on conditional pricing practices, and will accept written submissions from the public from now through Aug. 22, 2014. Interested parties may submit public comments electronically here.

The all-day workshop is free and open to the public and will be held at the Constitution Center, 400 7th St SW, Washington, D.C 20024.

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