Vertical Restraints and Antitrust Policy: A Reaction to Cooper, Froeb, O’Brien, and Vita

Ralph Winter, Sep 01, 2005

Cooper, Froeb, OBrien, and Vita argue that (1) economic theory, especially post-Chicago theory, provides little in the way of unambiguous predictions of when vertical restraints are pro-competitive versus anticompetitive, forcing antitrust decisions to rely mainly on prior empirical evidence rather than case-specific facts; and (2) prior evidence indicates that vertical restraints are unlikely to harm consumers. Antitrust policy, therefore, should be lenient towards the restraints. The author takes an opposing view that each case must be assessed on its own merits, with only modest reliance on prior empirical evidence, and that existing economic theory is very useful for this assessment. In some actual cases, vertical restraints are clearly anticompetitive and in others the restraints are pro-competitive, whatever the prior evidence shows about the relative frequency of these effects across markets. The author develops the argument for two specific vertical restraints: exclusivity contracts and minimum resale price maintenance.

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