A PYMNTS Company

Can We Rely Only On Effects-Based Analysis? Comments On Geradin And Pereira Neto

 |  July 29, 2013

Paulo Furquim de Azevedo, Jul 28, 2013

So common and yet so controversial. Vertical restraints are among the contractual forms that Ronald Coase ironically called ‘strange forms’; strange, not because they are unusual, but for the lack of a consensual understanding among economists and competition authorities about how to assess their effects on competition and welfare (Menard, 2004).

It was not always like that. During the 1950s, at the Warren Era, economists had a reasonable common understanding, shared with the competition authorities, that vertical restraints were presumably harmful to competition and to consumer welfare (Hovenkamp, 2005). Since then, economics has advanced significantly, first with the Chicago Critique and subsequently with the Post Chicago School. Our understanding about vertical restraints is certainly more comprehensive and rigorous, and while this makes the job of competition authorities more accurate, it does not make it easier. In particular, the theoretical models, even those largely accepted, do not provide a clear guidance for policy implementation, such as determining the degree of foreclosure that is sufficient to harm competition, or evaluating how to quantify efficiency gains from vertical restraints.

Without a common knowledge as to how to translate the theoretical models into practical rules, it is difficult to discriminate lawful and unlawful vertical restraints. Therefore, the rulings of competition authorities may be inconsistent and, hence, unpredictable. As firms are unable to anticipate competition authorities’ decisions, antitrust institutions fail to deliver their primary role: to induce behaviors and to deter anticompetitive strategies.