How Do Cartels Use Vertical Restraints? Reflections on Bork’s the Antitrust Paradox

Posted by Social Science Research Network

How Do Cartels Use Vertical Restraints? Reflections on Bork’s the Antitrust Paradox – Margaret C. Levenstein (University of Michigan at Ann Arbor – Survey Research Center; The Stephen M. Ross School of Business at the University of Michigan, Business Economics and Public Policy) and Valerie Y. Suslow (The Stephen M. Ross School of Business at the University of Michigan)

ABSTRACT: In The Antitrust Paradox, Robert Bork discusses policy responses to naked and ancillary price fixing as well as vertical restraints. Empirical research finds that vertical restraints are generally welfare-enhancing. We examine cartels that used vertical restraints to support collusion. We find that one quarter of a sample of convicted contemporary international cartels used vertical restraints. Some of these cartels used vertical restraints to control downstream firms who might otherwise have undermined collusion. In other cases, distributors themselves had market power and received a share of cartel rents in return for their willingness to exercise that power as part of a cartel. This raises questions for antitrust policy toward vertical restraints in highly concentrated industries or those with a history of cartel activity.