commercially viable amounts to individual customers. In other words, whether the rebate system hinders them to supply commercially viable shares of individual customers’ requirements. To answer this question the Commission will endeavor to calculate, in view of the level of the rebate percentage, what is the effective price for the buyer over such a commercially viable share in case this share would allow the buyer to benefit from the rebate on the purchases below the threshold. The lower the calculated effective price is compared to the average price of the dominant supplier, the stronger the loyalty enhancing effect. In case this effective price is below the average total cost of the dominant company, it will be very difficult and possibly even impossible for as efficient competitors to compete with the dominant company for this part of demand. In case the effective price is above cost this may make it possible for efficient competitors (in the long run) to match the dominant company’s offer, but it may exceptionally still work as a disincentive on expansion or entry by competitors. The main reason to take ATC as the cost benchmark below which the rebate system is considered to lead to an exclusionary effective price is that the leveraging between the ‘non-contestable’ and the ‘contestable’ portion of demand allows the rebate system to operate without a profit sacrifice and thus to operate for a long time. The customer may not derive a direct benefit from the rebate system as the rebate may only bring the average price down to the level existing without the rebate system. Below is a box giving an example of the calculation of the effective price.
Box A retro-active rebate and calculation of the effective price
Rebate of 2.5% on all sales once St>1,000,000 St is the purchased amount in the reference period Price per unit = 100 before rebate Price per unit = 97.5 after rebate Commercially viable amount = 5% or 50,000 units
With rebate: 1,000,000 x 97.5 = 97,500,000 Without rebate: 950,000 x 100 = 95,000,000
The difference of 2,500,000 is what is paid for the last 50,000 units over which the suction effect is calculated