03 July 2015

CMA closes rebates and discounts case and gives general guidance

On 26 June 2015, the Competition and Markets Authority (CMA) announced the closure of its investigation into a suspected breach of competition law in the pharmaceutical sector concerning alleged abusive discounts and rebates. The case has been closed on the grounds of administrative priority because the investigation no longer fits within the CMA’s casework priorities. The CMA also sets out some general guidance on potential competition concerns regarding discounts and rebates.

The CMA started its investigation last June over concerns that a dominant company may have been using discounts and rebates to the detriment of customers and competitors in breach of UK and EU competition law.

The CMA has however now concluded that the evidence gathered to date suggests that continuing the probe would have “limited, if any, impact on consumer welfare” and that continuation of the investigation in order to determine whether an infringement had been committed is not warranted. The CMA adds that it has sent a warning letter to the party under investigation, but stresses that no view has been taken in this case as to whether an infringement occurred.

The CMA also flags that “the decision to close this investigation should not be taken to imply that the CMA would not prioritise investigations into suspected loyalty-inducing discount schemes in the future”.

While the CMA did not divulge the specifics of its findings, it has set out in its statement some general guidance to businesses and their advisers detailing circumstances where the provision of rebates or discounts by a dominant company may raise competition concerns. The CMA's guidance highlights that discounts and rebates can be beneficial for customers (by lowering prices) and for the business provider (by achieving economies of scale). In addition, rebates that pass on cost savings from increased volumes by offering the customer lower prices on further units (incremental rebates) are, in general, unlikely to raise competition concerns.

However, the CMA notes that discounts and rebates offered by a dominant company can have a loyalty-inducing or fidelity-building effect that can infringe competition law. The CMA notes that “such rebate or discount schemes may raise competition concerns due to their potential to exclude or limit the ability of competing firms to operate in the market”. Where competition is restricted in this way, the CMA believes that consequently, the incentives for firms to innovate may be dampened and customers may suffer higher prices in the longer term. This can be the case even where the rebates or discounts are not conditional on the customer obtaining all or most of its requirements from the dominant company. The CMA sets out further guidance on potentially problematic rebates such as ‘roll-back’ rebates that may be loyalty-inducing. All sectors therefore need to be mindful about potential competition concerns when offering discounts or rebates when there is a position of market strength.

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