Agency Name: Superintendencia de Industria y Comercio Date:

Transcription

1 Agency Name: Superintendencia de Industria y Comercio Date: Single-Product Loyalty Discounts and Rebates This part of the questionnaire seeks information on ICN members analysis and treatment of loyalty discounts and rebates. The information provided will serve as the basis for a report that is intended to give an overview of law and practice regarding loyalty discounts and rebates in the respective jurisdictions. Unless otherwise stated, the questions concern unilateral conduct by a dominant firm or firm with significant market power. For this questionnaire, loyalty discounts and rebates are defined as discounts or rebates on units purchased of a single product, conditioned upon the level or share of purchases. This part of the questionnaire concerns only treatment of single-product discounts rather than pricing practices involving multiple products (bundling, tying, and related practices). You should feel free not to answer questions concerning aspects of your law or policy that are not well developed. Answers should be based on agency practice, legal guidelines, relevant case law, etc., rather than speculation. Experience 1. Please state the statutory provisions or legal basis that allow your agency to address loyalty discounts and rebates. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? Do these provisions apply only to dominant firms or to other firms as well? Loyalty discounts and rebates are not legally established either as an action or agreement that represents a violation to the competition law. Therefore, this agency is not able to state statutory provisions or legal basis for the matter. However, this does not mean that this practice has not been discussed and developed in some scenarios. This agency has addressed the loyalty discounts and rebates as lawful market strategies, which in some cases could lead to unlawful conducts. This signifies that setting a discount or a rebate on units purchased of a single product, conditioned upon the level or share of purchases, alone, as a selling method, does not configure a violation to the competition law, but it can be used in specific cases as a mean to incur in anticompetitive practices, together with another element, which is the dominant position of the firm performing them of or at least that holds a significant market power. These conducts potentially resulting from loyalty discounts and rebates strategies, are included in article 50 of Colombian s cardinal antitrust statute, Decree 2153 of

2 1992, in numerals 1, 2 and 4. These provisions make exclusive reference and apply only to agents with a dominant position, and the pointed numerals allude to practices such as pulling off predatory prices, the application of discriminatory conditions to equivalent operations and selling in different conditions to one buyer than another with the intention to lessen or eliminate competition in the market. To impress clarity to the issue, here is an example: in a duopoly market, an agent that holds 70% of the market share that sets him as the dominant participant, encourages his permanent buyers to increase their volume of purchase in return of a 40% discount in the price of every unit they acquire, this with the manifest intention of increasing the quantity of his sales. His competitor is being forced to reduce his prices to be able to compete, evidencing that it is not possible to reduce his price in the amount his competitor does, not even closer, because if done, he will be selling under his costs. His complaint will be centered on the displacement his competitor is pulling on him because of the predatory prices that this agent is offering to the public, as he can clearly deduce from his knowledge in the production of this product. As observed, if the second agent had not realized that the price of his competitor was structured below its costs of production, he wouldn t be able to complaint in the first place, because discounts and rebates are legitimate. So, the preceding investigation, if considered to be carried out by the agency, will concern predatory pricing. To synthesize, it must be reiterated that loyalty discounts and rebates are lawful conducts, no legal disposition has regulate them in order to prohibit them nor to condition them. Nevertheless, they can be used as a mechanism to perpetrate illegal conducts, which shall be analyzed in a case by case basis to determine whether or not a sanction must be imposed. Finally, this agency has not yet set out a doctrine position regarding the rebate figure. 2. How many in-depth investigations (i.e., beyond a preliminary review) of loyalty discount and rebate programs has your agency conducted during the past ten years? Please describe what prompted the investigations (e.g., competitor complaints). This question must be string together with the one answered above. if the loyalty discounts or rebates of a single product are not considered as illegal conducts, it would be imprecise to state that there have been in-depth investigations regarding such practice as the main issue. As said before, there are investigations that include this matter in a tangential way, as the mean to incur in anticompetitive conducts, but they are not set as the central debate.. The argument translates to their effect, as in the illegal conduct, which is the one to be analyzed during the investigation. 3. State the number of loyalty discounts and rebate programs that your agency found to be unlawful over the past ten years (1999 to date); include cases resolved informally as well as those that led to a formal decision. If your agency has found any loyalty discounts and rebate programs to be unlawful, please describe the anticompetitive effect and the circumstances that led to the finding. For administrative systems (i.e., the agency issues its own decisions on the legality of the conduct, which may be appealable in court), state the number

3 of agency decisions finding a violation or settlements that were challenged in court and, of those, the number upheld and overturned. For judicial systems (i.e., the agency challenges the legality of the conduct in court and the court issues a decision), state the number of cases your agency has brought that resulted in a final court decision that the conduct violates the competition law or a settlement that includes relief. Also state the number of cases that resulted in a final court decision that the conduct did not violate the competition law. Please state whether any of these cases were brought under a criminal antitrust law. Please provide a short English summary of the leading loyalty discount and rebate cases in your jurisdiction, and, if available, a link to the English translation, an executive summary, or press release. As stated in the answers above, loyalty discounts and rebate programs are considered to be perfectly lawful conducts. Even though, even if they can be the means to incur in an anticompetitive conduct, like predatory price fixing, this agency has not found a violation of the antitrust statutory provisions taking place as a result of a loyal discount or rebate, nor has such practice been challenged before the jurisdiction resulting in a final court decision that the conduct violates or does not violate the competition law. Does your jurisdiction allow private parties to challenge loyalty discounts and rebates in court? Yes/No. If yes, please provide a short description of representative examples of these cases. If known, indicate the number of cases brought (or an estimate thereof) by private parties. Yes. Private parties can challenge loyalty discounts and rebates in court only to the extent that they are the means to limit or restrict competition or the means for any practice specifically considered against competition in the statutory provisions. Consequently, the main issue would not be about the demonstration of the loyalty discount or rebate itself, as it would be, for instance, in the case of a conduct of predatory price fixing. On the contrary, the challenging party must establish that the consequence of the loyalty discount or rebate was anticompetitive. It must be clarified that the procedural way to challenge anticompetitive practices is considered a special proceeding to protect collective interests. Free competition is considered of collective interest 1, and potential or actual damages resulting from its violation, are taken under a collective point of view. Therefore, litigation between two private parties as a consequence of a violation of an antitrust rule is not foreseen as a private litigation - as for instance, in the case of unfair trade practices, where an individual right is protected by the law- but rather as an administrative investigation before this agency or a judicial proceeding similar to a class action. 1 Law 472 of 1998, article 4, i) and article 333 of the Colombian Constitution

4 Indeed, the special judicial procedure (named popular legal action -similar to a class action, but without the possibility of a claim for private damages-) is submitted before the jurisdiction for suits under administrative law, and it is not a dispute for the recognition, protection or restoration of a private individual right or for the compensation of a private damage (exceptions apply), but for the protection of a collective interest recognized by the Colombian Constitution. Therefore the purpose of these kinds of actions is either the avoidance of a contingent damage, the cease of an actual dammage, threaten, breach or offense of those collective interests, or to restore previous state when possible 2. Every private party, either an individual or a legal person, is entitled to bring this legal action before the jurisdiction, against any action or omission of an authority or a private party that have actually violated or threatens to violate the collective right or interest 3. Evaluative Criteria 4. In your jurisdiction, is the term single-product loyalty discounts and rebates used in a manner different from the definition in the first paragraph above? If so, how? In our jurisdiction, there is not a definition foreseen under the antitrust statutory provisions for the term single product loyalty discounts and rebates. However, further explanation should be made since it has been repeatedly stated that loyalty discounts and rebates, even if lawful, could become the means to an anticompetitive practice. Colombian antitrust statute foresees a general prohibition of concluding any agreements that directly or indirectly have as is object to limit production, supply, distribution or consume of raw materials, products, merchandises or national or foreign services, as well as, in general, every kind of practices, procedures or systems that tend to limit free competition or maintain or determine unfair prices. (article 1, Law 155 of 1989). It also includes a list of practices that are per se considered anticompetitive, which do not include single-product loyalty discounts and rebates. These practices, can be committed either through an agreement or an action and the sanction to be imposed may vary depending on whether they are committed by an agent with a dominant position or by any other agent without it. For instance, predatory price fixing is only considered an abuse of dominant position and only to that extent will it be considered to be against competition. That is, there is not an anticompetitive concern where an agent without dominant position fixes predatory prices, since given the competition level in the relevant market, there will not be a possibility to monopolize and its conduct will probably only result in the agent s broke. Accordingly, certain per se anticompetitive practices by any agent, can be only committed, either through an agreement, i.e. price fixing, market allocation between producers or suppliers, etc. (article 47, Decree 2153 of 1992) or only 2 Law 472 of 1998, article 2. 3 Law 472 of 1998, article 9.

5 through an action, i.e. violation of publicity requirements foreseen under the consumer protection statute, etc. (article 48, Decree 2153 of 1992), or they can be committed through any action or agreement but only by an agent with dominant position, i.e., predatory price fixing (article 50, Decree 2153 of 1992). In this sense, the definition of loyalty discount or rebate is not an issue since it is not itself considered to be against competition. It could be in the form of a unilateral conduct or be committed by an agent with or without dominant position. For instance, two agents agree that they will give loyalty discounts or rebates, only to certain buyers, with no reason to differentiate those buyers from others, therefore discriminating against the latter (regardless of their ultimate intent). In this case, loyalty discounts are not the result of a unilateral conduct but of an agreement, and the agents do not hold dominant position, however, loyalty discounts under those conditions might be the mean for an anticompetitive practice. What are your jurisdiction s criteria for evaluating the legality of loyalty discounts and rebates? As said before, there is not a criterion to evaluate the legality of loyalty discounts and rebates because these practices are considered lawful by our jurisdiction. It would be though considered whether the practice has as its object or effect a conduct considered to be against competition or if it could be considered to fall within the scope of the general prohibition mentioned above. a. What anticompetitive effects or other criteria make loyalty discounts and rebates abusive? Must the practice exclude or threaten to exclude rivals from the market? If only threatened exclusion is required, how is it determined? If neither actual nor threatened exclusion is required, what other factors are considered? This question is important to reiterate that the single product loyalty discounts and rebates are a lawful commercial strategies, but in some cases, they can lead to anticompetitive practices. As developed in the answer of question number one, it is necessary to separate both events. First, an agent can offer a discount or rebate over the purchase of one single product in exchange of a level or share of purchases, which is a lawful unilateral conduct that is not sanctioned by our jurisdiction. Secondly, this behavior could be used to incur in some illegal conducts and produce anticompetitive effects in the market, such as exclude or threaten to exclude rivals from the market, by the means of predatory prices, the application of discriminatory conditions to equivalent operations and selling in different conditions to one buyer than another with the intention to diminish or eliminate competition in the market. To answer the question directly, it should finally said that, regardless of the thesis described above, because of the legal nature of this figure in our jurisdiction, there are not anticompetitive effects or criteria that make loyalty discounts or rebates abusive by it self. In that sense, this agency reiterates, the only possibility left is that they are used as the mean to incur in anticompetitive conducts, in which case their object or effect are the ones to be analyzed to determine their illegality. The lawfulness of the single product loyalty discounts or rebates is never in jeopardy.

6 b. Does intent play a role, and if so what role and how is it demonstrated? Intent does not play a role, understood as the good or bad faith with which the conduct is committed or the consideration of an agent when concluding or performing an agreement or action, unless there is a specific provision requiring it. However the object of the conduct does play a role, since a conduct having as its object any of the practices considered to be against competition is enough to sanction the conduct, even if it is never actually committed. For instance, two agents agree to fix the price of their products above certain figure. The agreement had as its object price fixing which is per se considered against competition. One of the agents breaks the deal and fixes prices according to the market price. The sole conclusion of the agreement having as its object the price fixation is enough to sanction both agents. A second example, where a provision specifically requires certain intention, would be predatory price fixing. In this case, a dominant firm which fixes prices under its production costs, will only be sanctioned if the agent intended by those means to eliminate one or several competitors o to prevent their entry or expansion in the relevant market. Intent would have to be demonstrated in this case, again regardless of whether the agent had actually accomplished its goal. The above mentioned should apply to loyalty discounts and rebates to the extent that it is the means to incur in a conduct considered to be against competition. c. Does price-cost comparison play a role? If so, please describe the comparison(s) used and the role that it plays. In your answer, you may wish to address the following sorts of issues: What cost measures are used (e.g., average variable cost, average avoidable cost, average total cost)? Are price and cost compared with respect to all of a firm s sales to a particular customer or only with respect to incremental sales? How significant a role does the cost test play (e.g., is pricing below the relevant cost measure required or a pre-requisite to prove illegality? Does pricing above cost prove legality)? Please also indicate if recoupment plays a role and, if so, what role it plays. An agent that offers discounts and rebates over a single product could be getting into offering his products or services at laughable prices. This can configure an anticompetitive conduct, specifically predatory pricing, included as one of the conducts considered to be against competition under article 50 of the Decree 2153 de 1992, numeral 1. This conduct is sanctioned when the discount in the price is below the cost of production (specifically the variable cost) of the same agent, (not below the cost of production of his competitors, that is not predatory pricing, that is efficiency) intending the elimination of one or various competitors or to prevent the entry or expansion of them, and can only be carried out by an agent with dominant position in the market. This agency has not taken into account nor applies the recoupment test. Since predatory pricing is not part of the study currently developed, the explanation above should suffice. What is important is to understand that attaining single product loyalty discounts or rebates, they can be used as a mean to

7 commit predatory pricing, which is a resultant conduct which elements have to be analyzed separately. Presumptions and Safe Harbors 5. Are there circumstances under which loyalty discounts or rebates are presumed illegal? Yes/No If yes, please explain, including whether the presumption is rebuttable and, if so, what must be shown to rebut the presumption. No. Has your jurisdiction developed any safe harbors governing loyalty discounts or rebates? Yes/No If yes, please explain the terms of the safe harbor. No, this agency has not developed any safe harbors governing loyalty discounts or rebates, since given its lawful nature it would be unnecessary. Justifications and Defenses 6. What types of justifications and defenses, if any, are available to the dominant firm (e.g., efficiencies, meeting competition)? Please specify the role they play in the competitive analysis and who bears the burden of proof. There is no place to justify or defend offering loyalty discounts o rebates over single products, because they are not in the first place considered illegal. Policy 7. What policy considerations does your jurisdiction consider with respect to loyalty discounts and rebates? You may wish to address the following sorts of issues: Are loyalty discounts and rebates common? Does your jurisdiction generally consider them to be procompetitive? Does your answer depend on whether the firm offering the discounts is dominant? Does your jurisdiction view loyalty discounts and rebates by a dominant firm as generally anticompetitive? What competitive concern(s), if any, are generally associated with loyalty discounts and rebates in your jurisdiction? In our market, loyalty discounts are a common practice. As stated in previous answers, our jurisdiction considers them to be lawful, and generally procompetitive as commercial strategies used by economic agents (with or without dominant position) as incentives to increase their volume of sells of a specific product, promoting efficiency and ends up benefiting costumers. Any agent can use this strategy regardless on a quality such as holding a dominant position or a significant participation in the market; however this distinction becomes relevant in pointing the possible anticompetitive conducts in which the agent can incur by over posing a loyalty discount or rebate. The conducts mentioned as an example in previous answers, such as establishing predatory prices, the application of discriminatory conditions to equivalent operations and selling in different conditions to one buyer than another with the intention to diminish or eliminate competition in the market are circumscribed to dominant position holders.

8 As observed, the competitive concerns about loyalty discounts and rebates do not fall on considerations about its lawfulness. The only apprehension related to this subject appears when this figure is used as a facade to commit anticompetitive conducts in the market. 8. Please provide any additional comments on your experience with loyalty discounts and rebates. You may wish to address whether there are significant policy and/or practical considerations that may lead to greater or lesser agency enforcement against loyalty discounts and rebates pursuant to your unilateral conduct rules, e.g., concern with the risks of false positives/false negatives and/or the presence or lack of evidence of consumer harm. N/A