Loyalty Is Usually Good - The Treatment of Loyalty Programs under the Competition Act

Abstract

Loyalty programs are pervasive. They are a form of competition which usually lowers prices and benefits customers. They may also generate efficiencies, encourage the supplying firm to invest in the development and marketing of new products, and incentivize distributors to promote the supplier's products. However, in certain circumstances loyalty rebates may allow market power to be exercised through raising rivals' costs and/or strengthening barriers to entry. This article examines the application of the exclusive dealing and abuse of dominance provisions of the Competition Act to loyalty programs and suggests how the Commissioner of Competition may choose which enforcement track to pursue when anti-competitive concerns arise.