The Federal Trade Commission and the Department of Justice are seeking comment on conditional pricing practices.  

Conditional pricing arrangements are 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.  

Both the FTC and Justice Department will be holding a joint public workshop on June 23, 2014, to explore the economic and legal analysis of conditional pricing practices among firms in a supply chain. “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,” the Justice Department stated.

According to the Justice Department, “conditional pricing practices, similar to other distribution strategies, may have anti-competitive 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 rivals that do not produce all of the products in the bundle efficiencies of scale or scope,” the Justice Department said. Supporters of such arrangements contend, on the other hand, 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,” the Justice Department stated.  

Workshop Details

Workshop participants will examine both theoretical and empirical economic learning regarding these arrangements and consider many questions, including:

What are the economic theories of harm and benefit?

What do economic and business-strategy literature 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?  

To what degree might less-restrictive alternatives enable firms to achieve those same efficiencies?  

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.

Written comments will be accepted now through Aug. 22, and may be submitted here. Submitted comments will be made publicly available on the Justice Department and FTC Websites.