The FTC's Bureau of Economics released a detailed economic analysis on February 13 exploring how loyalty discounts—pricing arrangements that reward customers for concentrating purchases with a single supplier—can stifle competition when network effects are present. The analysis, authored by Matthew Chesnes from the Division of Antitrust and Ted Rosenbaum, the acting Bureau of Economics Director, uses the commission's enforcement action against Surescripts as a case study.
The officials argue that in markets with network effects, where the value of a service increases as more participants use it, loyalty discounts can create particularly strong barriers to entry and expansion for competitors. Unlike traditional loyalty discount cases that focus on foreclosure effects in linear supply chains, the analysis suggests that network markets require different competitive assessment because participants benefit from being on the same platform as others.
Surescripts, which operates the dominant electronic prescription routing network connecting pharmacies, prescribers, and health plans, faced FTC enforcement action for allegedly using loyalty discounts and other exclusionary practices to maintain its market position. The company's network processes billions of prescriptions annually, making it critical infrastructure for the U.S. healthcare system's electronic prescription workflow.
The analysis comes as the FTC has intensified scrutiny of platform markets and network effects under Chair Lina Khan's leadership, with the agency pursuing cases against tech giants and examining how traditional antitrust theories apply to digital markets. The Surescripts matter represents the commission's effort to apply network effects analysis beyond big tech to essential business-to-business infrastructure.
The officials note that loyalty discounts in network markets can harm competition even when they don't foreclose rivals entirely, because they can prevent competitors from reaching critical mass necessary to offer an attractive alternative platform. This theory could influence how courts and practitioners approach loyalty discount cases in platform markets going forward.
The analysis signals the FTC's continued focus on developing economic frameworks for evaluating competitive conduct in network markets, an area where traditional antitrust analysis may not capture the full competitive dynamics at play.