A discount is a discount, says the Fifth Circuit

A predatory pricer lowers prices long enough to drive competitors out of the market. Once its competitors are killed off, the predatory pricer can then charge a monopoly price for its goods—which recoups the losses it had sustained earlier. Predatory pricing is, of course, unlawful under the Sherman Act. 

To encourage dealers to sell GM-manufactured car parts for reduced prices, General Motors provides rebates to dealers that sell those parts. The rebates ensure that the dealers make a profit on those parts despite the reduced price.

Felder’s Collision, which sells generic car parts, asserts that this rebate program amounts to predatory pricing. It has sued a competing dealership, All Star, that participates in the GM rebate program.

Selling a good below its cost is a necessary element of a predatory pricing claim. What, though, is the relevant cost in this case? If the rebate that All Star receives from GM isn’t taken into account, then All Star is indeed selling the parts below their cost. The whole point of the rebate, though, is to preserve All Star’s profits—hence, if the rebate is taken into account, All Star is turning a profit on the GM parts. 

The Fifth Circuit concludes that the rebate has to be taken into account to determine cost. Suppose that GM hadn’t given All Star an after-sale rebate but instead had simply reduced the cost of the parts to All Star upfront by the same amount as the after-sale rebate. Everybody agrees that if GM had done that, Felder’s wouldn’t have a case, since there wouldn’t be any ambiguity about what the part’s cost was. Yet, as a matter of economic reality, says the Fifth Circuit, what is happening here is precisely the same thing. A discount, in short, is a discount. The district court’s dismissal of the antitrust claim is  affirmed.

Now, here’s a different (and probably an unrealistic) hypothetical to ponder. Suppose that GM had given All Star after-sale rebates on parts, but insisted on delaying the payment of those rebates by five years. I imagine that the rebates would then have to be discounted to their present value in order to determine cost.