Vertical Restraints and Competition Policy Internet Sales, a New Dimension to be Considered

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Kornel Mahlstein, Mar 12, 2009

The internet expands the size of the market and gives consumers access to more providers and more choice—that is the EC Commission’s conclusion after having studied consumer experience and satisfaction with shopping online. Nevertheless, in recent times there has been an increasing trend of suppliers imposing restrictions on their retailers, preventing them from effectively using the internet for sale and/or advertising, and thus hindering consumers from fully benefitting from this new retail channel. These vertical restraints, imposed by suppliers on the online distribution channels, are the topic of this study. As a matter of definition, vertical restraints (“VR”) are contracts between suppliers and retailers that restrict the range of actions the two parties can take. Generally, VRs comprise two groups, resale price maintenance (RPM) and selective distribution agreements (SDA). Traditionally, with respect to competition policy, these two formats of VRs have received different treatment. RPM is prohibited in most countries; SDAs are generally looked at more favorably. This short article makes the point that SDAs, and especially those that seek to constrain internet sales, are dubious and potentially very detrimental to consumer welfare.