We are grateful for financial support from the Social Sciences and Humanities Research Council of Canada. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

To what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry? We show that off-list-price rebates that do not commit buyers to unconditional transfers-like the rebates in EU Commission v. Michelin II, for instance-cannot be anticompetitive. This is true even in the presence of cost uncertainty, scale economies, or intense downstream competition, all three market settings where exclusion has been shown to emerge with exclusive dealing contracts. The difference stems from the fact that, unlike exclusive dealing provisions, rebates do not contractually commit retailers to exclusivity when signing the contract. (JEL D43, D86, K21, L13, L14, L42, L60) Following many real-world examples, suppose we observe a dominant manufacturer offering the following rebate contract to a retail buyer who is considering buying a few units from an alternative small supplier: "As long as you buy exclusively from me, you get 10 percent off the list price on all units you purchase; otherwise, you pay the full list price for as many units as you want." How can the antitrust authority be sure that such a contract is not offered to monopolize the market? Despite its similarity to an exclusive dealing arrangement, which has been shown to effectively foreclose the entry of a more efficient rival in a variety of market settings, one main objective of this paper is to explain why in those same settings the rebate contract above cannot be anticompetitive.One of the most controversial issues in antitrust and competition policy is indeed the potential exclusionary effects of exclusive dealing arrangements, discount contracts (e.g., rebates), and related vertical practices. This controversy dates back at least to United States v. United Shoe Machinery, and Standard Fashion

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