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Economics for Competition Lawyers, 2nd Edition by Niels, Gunnar; Jenkins, Helen; Kavanagh, James (24th March 2016)

6 Vertical Restraints

Gunnar Niels, Helen Jenkins, James Kavanagh

From: Economics for Competition Lawyers (2nd Edition)

Dr Gunnar Niels, Dr Helen Jenkins, James Kavanagh

Subject(s):
Recommended resale prices — Resale price maintenance — Restriction of competition — Exclusive distribution and supply agreements — Exclusive purchasing agreements — Guidelines on Vertical Restraints

This chapter covers the economics of vertical restraints. Such restraints are very common as businesses try to organize their supply and distribution channels efficiently. Competition law faces the challenging task of assessing whether the positive efficiency effects outweigh the anti-competitive effects. The chapter first explains the main efficiency rationales for vertical restraints, including the problems of double marginalization, free-riding, and hold-up. It then sets out how counterfactual analysis can provide insight into whether there is actually a restriction of competition in the first place. The chapter next deals with the foreclosure effects of vertical restraints, and discusses two types of vertical restraint that continue to receive hostile treatment under competition law: resale price maintenance, and territorial restrictions along national boundaries. Finally, the chapter covers vertical restraints in online markets and discusses how these raise new or different challenges—for example, most-favoured-nation (MFN) clauses in online hotel bookings and e-books.

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