Competition Law and Rewards Programs: Detailed Competition Analysis

1. Introduction

Rewards programs are commercial schemes through which a business gives customers a benefit for purchasing more frequently, spending more, remaining loyal, reaching a spending threshold, or using particular products or services.

Examples include:

airline frequent-flyer programs;

hotel loyalty programs;

supermarket points;

credit-card rewards;

fuel-station loyalty schemes;

online-platform reward programs;

cashback arrangements;

subscription rewards;

retailer membership programs;

digital-wallet incentives;

business-customer volume rebates.

Rewards programs can be pro-competitive because they may reduce prices, reward customers, encourage repeat purchases, increase demand and generate efficiencies. However, when operated by a dominant undertaking, a rewards scheme can potentially exclude competitors by making customers reluctant to switch.

Under EU competition law, the principal provisions are Article 101 TFEU, concerning restrictive agreements, and Article 102 TFEU, concerning abuse of dominance. Article 102 specifically prohibits abusive conduct by a dominant undertaking, including conduct capable of excluding competitors. (Competition Policy)

The important legal distinction is therefore:

A reward is not unlawful merely because it encourages customer loyalty. The competition-law question is whether its structure and effects restrict competition in a prohibited manner.

2. Meaning of a Rewards Program

A rewards program normally has four elements:

1. Customer participation

The consumer or business customer joins the program.

2. Qualifying behaviour

The customer earns rewards by:

purchasing products;

spending a certain amount;

reaching a volume;

using a particular payment method;

renewing a subscription;

purchasing repeatedly.

3. Reward

The customer receives:

points;

cashback;

discounts;

free products;

upgrades;

vouchers;

miles;

priority services.

4. Conditionality

The reward may depend upon:

total expenditure;

percentage of purchases;

exclusive purchasing;

achievement of a target;

continued membership.

The conditionality is often particularly important in competition analysis.

3. Basic Competition-Law Framework

Article 101 TFEU

Article 101 applies primarily where two or more independent undertakings enter into agreements or coordinated practices that restrict competition. The Commission identifies price fixing and market sharing as classic examples of Article 101 infringements. (Competition Policy)

A rewards arrangement could therefore raise Article 101 issues where competitors coordinate:

loyalty benefits;

reward points;

customer allocation;

prices;

cashback levels;

redemption conditions.

For example, competing retailers agreeing that customers should receive identical reward points could potentially reduce competition between them.

4. Article 102 TFEU

Article 102 becomes especially important when the rewards program is operated by a dominant undertaking.

Dominance itself is not unlawful. The problem is abuse of dominance. The Commission considers factors including market shares, barriers to entry, buyer power, resources and vertical integration when assessing dominance. (Competition Policy)

A dominant company may therefore offer discounts and rewards, but it has a special responsibility not to use them in a way that unlawfully excludes competitors.

5. Types of Rewards Programs

A. Simple Loyalty Points

Example:

Spend €1 = 1 point.

This is generally a straightforward customer-incentive mechanism.

Competition concerns may arise if the points are designed to make switching to competitors commercially unattractive.

B. Volume-Based Rewards

Example:

Spend €10,000 during a year and receive a 10% reward.

These arrangements require closer examination when offered by a dominant company.

C. Retroactive Rebates

A particularly important form is:

If the customer reaches a specified threshold, the reward applies to all purchases during the relevant period.

The Commission has explained that retroactive rebates can create stronger loyalty effects because switching a relatively small portion of purchases may cause the customer to lose the rebate on previous purchases as well. (Competition Policy)

D. Incremental Rewards

Example:

Purchases above 10,000 units receive a 15% rebate.

Only the additional purchases receive the benefit.

The competitive effect can differ substantially from a retroactive scheme.

E. Exclusivity Rewards

Example:

Receive a large reward only if you purchase all or almost all of your requirements from us.

This raises particularly serious Article 102 questions where the provider is dominant.

6. Why Rewards Programs Can Affect Competition

A rewards program can influence the customer's switching decision.

Suppose a customer purchases:

80% from Firm A;

20% from Firm B.

Firm A offers:

“If you purchase 90% from us, you receive a 20% annual reward on all purchases.”

The customer may calculate that moving more purchases to Firm B would cause the customer to lose the entire reward.

Thus, the reward can make the contestable portion of demand less accessible to competitors.

The Commission's Article 102 materials specifically discuss this phenomenon in relation to conditional and retroactive rebates. (Competition Policy)

7. Relevant Market

Before determining whether a rewards program is anti-competitive, the relevant market must normally be defined.

Questions may include:

What products are substitutes?

What services compete?

Is the market local, national or EU-wide?

Can customers switch suppliers?

Are online and offline products substitutes?

Are premium and basic products in the same market?

The Commission states that the relevant product market is based on products consumers regard as substitutes because of characteristics, prices and intended use, while the geographic market concerns areas where competitive conditions are sufficiently homogeneous. (Competition Policy)

8. Dominance

A rewards scheme becomes particularly significant under Article 102 when the undertaking has substantial market power.

Relevant considerations include:

market share;

duration of market position;

barriers to entry;

network effects;

customer switching costs;

brand strength;

access to distribution;

financial resources;

vertical integration.

A company with a small market share offering a loyalty program is not automatically subject to Article 102 merely because customers like its rewards.

9. Loyalty-Inducing Effect

The central question can be expressed as:

Does the reward merely encourage purchases, or does it materially discourage customers from purchasing from competitors?

Relevant factors include:

Reward size

A very large reward may create stronger incentives.

Threshold

A threshold close to the customer's expected purchases may have a stronger loyalty effect.

Duration

Long reference periods may increase customer lock-in.

Retroactivity

Rewards applied to previous purchases may create stronger switching costs.

Exclusivity

Requirements to purchase exclusively or almost exclusively can be particularly significant.

Market coverage

The greater the proportion of demand affected, the more important the scheme may become.

10. Case Law

Case 1 — Michelin v Commission, Case 322/81

Facts

Michelin operated in the tyre market and used a system involving rebates for dealers.

The Court examined the competitive significance of Michelin's rebate system in light of its dominant position.

Principle

The Court stressed that a dominant undertaking has a special responsibility not to allow its conduct to impair genuine competition.

The analysis of rebates cannot be separated from the structure and competitive conditions of the market. (Infocuria)

Importance for rewards programs

A sophisticated loyalty program must be examined in its economic and market context, not simply by looking at whether customers receive a discount.

11. Case 2 — British Airways v Commission, C-95/04 P

Facts

British Airways provided bonuses and financial incentives to travel agents linked to sales of BA tickets.

The system rewarded agents based on sales performance, including arrangements where achieving a target affected remuneration on tickets sold during the relevant period.

Judgment

The Court upheld the finding that BA's reward arrangements could have a loyalty-inducing and exclusionary effect.

The Court considered whether the scheme could make market entry more difficult for competitors and make it harder for travel agents to choose between different suppliers. (Infocuria)

Principle

A rewards scheme operated by a dominant company may constitute an abuse where its structure is capable of excluding competitors.

Relevance

This is one of the most directly useful authorities for:

performance rewards;

loyalty bonuses;

sales incentives;

customer loyalty schemes.

12. Case 3 — Tomra Systems v Commission, C-549/10 P

Facts

Tomra supplied machines used for collecting used beverage containers.

It entered into arrangements involving:

exclusivity;

quantity commitments;

loyalty rebates.

Judgment

The Court upheld the finding concerning exclusionary conduct.

It stated that abuse is an objective concept concerning conduct capable of affecting market structure and hindering the maintenance or growth of competition. It was not necessary to establish anti-competitive intent. (Infocuria)

Principle

The absence of an explicit intention to eliminate competitors does not automatically make a loyalty scheme lawful.

Relevance

A company could therefore face competition scrutiny even if it describes its rewards program simply as a customer-retention strategy.

13. Case 4 — Intel v Commission, C-413/14 P

Facts

Intel provided conditional rebates and payments to major computer manufacturers and a retailer.

The Commission considered the arrangements part of a strategy capable of foreclosing Intel's principal competitor.

Court of Justice

The Court clarified the analysis of loyalty rebates.

Where the dominant undertaking submits evidence that its conduct is not capable of producing exclusionary effects, the competition authority must assess the circumstances relevant to that claim, including whether the conduct is capable of excluding competitors that are at least as efficient. (Infocuria)

The case was therefore referred back to the General Court.

Principle

The economic effects of a conditional rebate may need substantive examination rather than being treated as automatically unlawful in every case.

Relevance

This is extremely important for modern rewards programs because businesses can argue that their discounts reflect:

efficiencies;

economies of scale;

genuine customer benefits;

legitimate commercial incentives.

14. Case 5 — Post Danmark A/S v Konkurrencerådet, C-23/14

Facts

Post Danmark operated a retroactive rebate scheme in the market for distribution of bulk mail.

The rebates depended upon achieving certain purchase thresholds.

Judgment

The Court required consideration of all the circumstances, including:

the criteria governing the rebate;

the market position of the dominant undertaking;

the proportion of the market covered;

the conditions of competition;

the duration;

the possible exclusionary effect.

The Court also considered the relevance of the as-efficient-competitor analysis. (Infocuria)

Principle

A retroactive reward scheme must be examined in its actual economic context.

Relevance

This is particularly applicable to:

supermarket loyalty programs;

corporate purchasing rebates;

airline loyalty schemes;

annual spending rewards.

15. Case 6 — Post Danmark A/S v Konkurrencerådet, C-209/10

This earlier Post Danmark case concerned selectively low prices rather than a classic loyalty-rebate program.

The Court examined:

selective pricing;

actual or likely exclusion;

effects on competition;

consumer effects;

objective justification.

It held that price discrimination does not automatically establish an exclusionary abuse. (Infocuria)

Relevance

The case is useful because rewards programs often contain different rewards for different customer groups.

A company giving different rewards to different customers does not automatically infringe Article 102. The competitive effects and justification must be considered.

16. Case 7 — Michelin II, Case T-203/01

Michelin's later rebate arrangements were also examined by the EU courts.

The case is important for understanding how the assessment of rebates evolved toward consideration of the actual competitive effects and the particular structure of the rebate system.

Principle

The economic circumstances surrounding the rebate—including customer demand, market coverage, thresholds and the practical ability of rivals to compete—are relevant.

Relevance

Modern rewards programs should therefore be examined through their actual commercial operation, rather than solely their contractual wording.

17. Case 8 — Intel, T-286/09 RENV

Following the Court of Justice's 2017 judgment, the General Court reconsidered Intel's rebate arrangements.

The General Court's later proceedings examined the Commission's economic analysis, including issues concerning:

the as-efficient-competitor test;

the share of the market covered;

duration;

the capacity of the rebates to foreclose competitors.

The case illustrates the continuing importance of economic evidence in rebate cases. (Infocuria)

18. Summary of Important Cases

19. Retroactive Rewards and Switching Costs

This is one of the most important concepts.

Suppose a customer has already spent €90,000 with Company A.

Company A promises:

“Spend €100,000 and receive a 15% reward on your entire annual expenditure.”

The customer has a strong incentive to spend the additional €10,000 with A.

If the customer moves that €10,000 to Company B, the customer may lose the reward on the previous €90,000.

Therefore, the economic cost of switching may be much larger than the nominal value of the additional purchase.

This is why retroactive rebates have historically received particular attention under Article 102. (Competition Policy)

20. Contestable and Non-Contestable Demand

Competition analysis can divide customer demand conceptually into:

Non-contestable demand

Purchases that the customer would make from the dominant undertaking anyway.

Contestable demand

Purchases that could realistically be obtained by competitors.

A dominant undertaking may use rewards attached to the non-contestable portion to make competitors compete for the remaining contestable demand at an economically difficult price.

The Commission's guidance specifically discusses this distinction in its analysis of conditional rebates. (Competition Policy)

21. Individualised Thresholds

An individualised reward might say:

“If you purchase 90% of your annual requirements from us, you receive a reward.”

This can be more loyalty-inducing than a standard threshold because the target can be calibrated to the customer's particular purchasing requirements.

The Commission's Article 102 guidance has specifically identified individualised thresholds as potentially significant because they can make switching more difficult. (Competition Policy)

22. Standardised Thresholds

A standardised program could provide:

“Spend €10,000 and receive 5% cashback.”

This does not necessarily create the same foreclosure effect.

For some customers, €10,000 may be far above their normal expenditure.

For others, it may be easily achievable.

Therefore, the same reward can have different competitive effects on different customers.

23. Loyalty Programs in Digital Markets

Modern rewards programs increasingly operate through:

mobile applications;

digital wallets;

online marketplaces;

subscription platforms;

payment applications;

data-driven personalised offers.

This creates additional competition issues.

A digital rewards platform can collect information about:

customer purchases;

frequency;

spending;

product preferences;

switching behaviour.

That information can potentially improve legitimate personalisation, but it can also create strategic advantages for a dominant platform.

24. Data as a Competitive Advantage

Suppose Platform A has a loyalty program used by 80% of consumers.

The program generates extensive purchasing data.

Platform A can use the data to:

personalise discounts;

predict customer switching;

target promotions;

identify competitor threats.

The competition-law question is not simply whether data are collected.

The issue becomes whether the undertaking uses its market position or associated practices to unlawfully restrict competition.

25. Rewards and Network Effects

Rewards can also reinforce network effects.

For example:

More customers → more transaction data → better rewards → more customers → more merchants → greater attractiveness.

This can be commercially legitimate.

But if a dominant platform combines rewards with exclusionary arrangements requiring merchants or consumers to avoid competing platforms, Article 102 concerns could arise.

26. Multi-Sided Rewards Programs

Modern programs can involve several groups:

Consumers ↔ Platform ↔ Merchants

For example:

consumers receive points;

merchants pay fees;

the platform controls redemption.

Competition analysis may therefore need to consider several interconnected sides of the market.

27. Merchant-Funded Rewards

Many rewards programs are not funded entirely by the platform.

Instead:

consumer purchases;

merchant pays a fee;

platform provides points;

consumer receives a reward.

Competition concerns may arise if participation becomes effectively compulsory for merchants because consumers overwhelmingly expect the reward.

28. Exclusive Merchant Participation

A platform might offer:

“Merchants participating in our rewards program cannot participate in competing rewards platforms.”

If the platform is dominant, such exclusivity could raise Article 102 questions.

The assessment would depend upon:

duration;

market coverage;

alternatives;

customer demand;

market power;

foreclosure effects;

objective justification.

29. Bundling Rewards With Other Services

A company could combine:

loyalty points;

payment services;

insurance;

credit;

subscriptions;

delivery.

This may create a bundled ecosystem.

Bundling is not automatically unlawful.

The competition question is whether the arrangement improperly leverages dominance from one market into another or forecloses competitors.

30. Rewards and Predatory Pricing

A rewards program can sometimes operate economically like a discount.

For example:

€100 purchase → €30 cashback.

The competition authority may need to examine the effective price and the economic structure of the program.

Where the undertaking is dominant, pricing below appropriate cost measures can potentially raise predatory-pricing concerns.

However, ordinary promotional discounts are not automatically predatory.

31. Rewards and Price Discrimination

Different customers may receive:

different cashback;

different points;

personalised offers;

different membership levels.

This raises a question of discriminatory treatment.

Under Article 102(c), applying dissimilar conditions to equivalent transactions can be problematic where it places trading partners at a competitive disadvantage. (Competition Policy)

But differentiated rewards do not automatically establish an infringement. The competitive context and legal requirements must be examined.

32. Article 101 and Cooperation Between Competitors

Rewards programs may also involve cooperation among competing companies.

Examples:

Airline alliances

Several airlines may allow customers to earn or redeem points across multiple airlines.

Credit-card networks

Banks and payment providers may participate in common reward arrangements.

Retail coalitions

Several retailers may operate a joint loyalty scheme.

These arrangements can create consumer benefits but may also raise Article 101 concerns if they facilitate:

price coordination;

customer allocation;

exchange of sensitive information;

exclusion of competing schemes.

33. Consumer Benefits

Rewards programs can create genuine efficiencies.

They may:

reduce effective prices;

reward repeat customers;

increase output;

improve customer retention;

encourage product discovery;

reduce transaction costs;

provide personalised offers.

Competition law does not prohibit commercial success or legitimate discounts.

The Commission's materials recognise that conditional rebates can sometimes stimulate demand and benefit consumers. (Competition Policy)

34. Competition Harm

Potential harm may include:

Competitor foreclosure

Competitors lose access to customers.

Higher entry barriers

New firms cannot attract customers because customers are locked into reward systems.

Reduced innovation

Competitors may have insufficient scale to invest.

Reduced choice

Consumers may have fewer realistic alternatives.

Higher long-term prices

A loyalty program may initially appear attractive but could contribute to market concentration.

35. Evidence Required in a Competition Investigation

Authorities may examine:

Program documents

terms and conditions;

reward thresholds;

eligibility rules;

redemption rules.

Financial evidence

effective discounts;

rebate percentages;

cost data;

margins.

Customer evidence

switching rates;

customer surveys;

purchasing patterns.

Market evidence

competitor entry;

competitor exit;

market shares;

market coverage.

Internal documents

emails;

strategy papers;

presentations;

pricing plans.

Economic analysis

foreclosure models;

counterfactual analysis;

as-efficient-competitor analysis;

effective-price calculations.

36. As-Efficient-Competitor Test

The AEC test asks, broadly:

Could a competitor that is at least as efficient as the dominant undertaking compete profitably against the reward scheme?

The Intel judgment is particularly important here.

The Court of Justice required consideration of the dominant undertaking's arguments concerning the actual capability of its rebates to foreclose competitors where such evidence was submitted. (curia)

The AEC analysis is therefore an important economic tool, but it is not a universal mechanical test for every rewards program.

37. Objective Justification

A dominant company may argue that its reward program is justified by:

genuine cost savings;

administrative efficiencies;

economies of scale;

inventory efficiencies;

predictable demand;

reduced distribution costs.

The company may need evidence demonstrating the connection between the reward and the claimed efficiency.

The British Airways case, for example, considered whether the reward scheme could be economically justified by efficiencies or cost savings. (curia)

38. Proportionality

Even where a legitimate objective exists, the structure of the program may matter.

For example:

“We provide a small discount because customers purchase in large volumes.”

may have a different competitive effect from:

“Customers receive a very large retroactive reward only if they purchase almost all requirements from us.”

The second structure may require considerably greater competition-law scrutiny.

39. Remedies

Where a competition authority establishes an infringement, possible remedies can include:

termination of the unlawful reward scheme;

modification of thresholds;

removal of exclusivity;

restructuring of rebate calculations;

prohibition of discriminatory conditions;

information-access safeguards;

fines.

The Commission states that Article 102 prohibition decisions can require undertakings to end infringing conduct and can impose remedies and/or fines. (Competition Policy)

40. Private Damages

Customers or competitors harmed by an infringement may potentially seek compensation under the EU and national private-enforcement framework.

The European Commission notes that all Member States have implemented the 2014 Antitrust Damages Directive and that Articles 101 and 102 can give rise to compensation claims for harm caused by competition-law infringements. (Competition Policy)

Potential losses may include:

overpayments;

lost sales;

lost customers;

lost profits;

increased acquisition costs.

41. Compliance Checklist for Businesses

Before introducing a major rewards program, a company should examine:

Market position

Are we dominant?

What is our market share?

Are entry barriers significant?

Program design

Is the reward conditional?

Is it retroactive?

Is it incremental?

Is there an exclusivity requirement?

Threshold

Is it individualised?

Is it close to the customer's normal requirements?

Economic effect

What is the effective discount?

How much demand is contestable?

Could an equally efficient competitor compete?

Customer freedom

Can customers switch easily?

Would switching cause them to lose rewards already earned?

Duration

Is the reward annual?

Multi-year?

Automatically renewed?

Justification

What efficiency does the program produce?

Can the efficiency be documented?

42. Hypothetical Example

Assume Company A has a dominant position in an online grocery market.

It offers:

Basic: 1 point per €1 spent.

This is ordinarily a straightforward loyalty mechanism.

It then introduces:

Premium: Customers who purchase 90% of their annual grocery requirements from Company A receive 20% cashback on all annual purchases.

The second program deserves greater competition scrutiny because:

Company A is dominant;

the threshold is high;

the reward is retroactive;

customers may lose the reward if they switch;

competitors must capture a substantial share of the customer's purchases to compete;

the reward may cover a significant portion of market demand.

The analysis would draw upon the principles developed in Michelin, British Airways, Tomra, Intel and Post Danmark.

43. Important Distinction: Rewards Are Not Automatically Illegal

This is an essential examination point.

Generally legitimate

“Buy 10 products and receive 1 free.”

Potentially more concerning

“Buy 90% of your annual requirements from us and receive a large reward on all purchases.”

The second arrangement is not automatically unlawful either. It requires assessment of:

dominance;

market coverage;

duration;

reward structure;

foreclosure capability;

efficiencies;

competitive conditions.

44. Key Legal Principles

Rewards programs are not inherently anti-competitive.

Article 101 applies to restrictive agreements and coordinated practices.

Article 102 applies where a dominant undertaking abuses its position.

Loyalty rebates can become problematic when they foreclose competitors.

Retroactive rebates can create strong switching incentives.

Exclusivity conditions deserve particular scrutiny.

Individualised thresholds can strengthen loyalty effects.

Market coverage matters.

Duration matters.

The effective economic value of the reward matters.

Customer switching costs are important.

The AEC analysis can be relevant in appropriate Article 102 cases.

Objective efficiencies can be relevant.

Consumer benefits should be considered.

Competition authorities examine the actual economic effects and circumstances, not merely the name given to the program.

A dominant company's technological or commercial success is not itself an infringement.

Different rewards for different customers are not automatically unlawful discrimination.

Competitor coordination concerning rewards can raise Article 101 concerns.

Digital loyalty schemes may create additional data and platform-related issues.

Private parties may have damages remedies where an infringement causes compensable harm.

45. Conclusion

Rewards programs sit at the intersection of pricing, customer loyalty and competition law.

Their competitive assessment depends heavily on who operates the program, the undertaking's market power, the design of the reward, the conditions attached to it, the proportion of demand affected and the actual or potential effect on competitors.

The leading European cases establish a progression:

Michelin → dominant undertaking's special responsibility
↓
British Airways → loyalty-inducing performance rewards
↓
Tomra → exclusivity and loyalty rebates can foreclose competition
↓
Intel → economic capability and effects analysis are important
↓
Post Danmark II → examine the complete circumstances surrounding the rebate
↓
Modern Article 102 framework → assess exclusionary conduct through an effects-oriented analysis consistent with EU case law. (Competition Policy)

Short examination formula

Rewards Program + Market Power + Conditionality + Loyalty Effect + Foreclosure Capability + Market Coverage + Duration + Efficiencies = Competition-Law Analysis.

The most important cases to remember are Michelin, British Airways, Tomra, Intel, Post Danmark I and Post Danmark II.