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Business Articles Awards > Economics

USA: The Role of Economic Analysis in the Assessment of Vertical Restraints

Kivanc Kirgiz, Howard Marvel, Concurrences N° 1-2017

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Suppliers of goods and services and their distributors and dealers collaborate to put products on the market. Their relationships often involve vertical restraints that impose contractual limitations on one or both parties. For example, a distributor may agree not to sell the products of other suppliers, or a supplier may commit to sell its products exclusively through one dealership in a geographic or customer territory. These restraints were long considered to be restrictions on competition that disrupted free access to consumers and were therefore treated as per se violations of U.S. antitrust laws. For economists, the key question was the motivation of companies to consent to such limitations. For example, why would a producer accept a limitation on competition that raised dealer margins and, all else equal, reduced its wholesale price? Economic analysis concluded that, if the suppliers were not coerced by powerful distributors to take actions contrary to their own interests, the restraints must have improved economic efficiency and allowed suppliers to compete more effectively.

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