Non-price Vertical Restraints Research Articles

When Do Non-Price Vertical Restraints Become Unreasonable?

When Do Non-Price Vertical Restraints Become Unreasonable?

Donald Turner, Vertical Restraints, and the Inhospitality Tradition of Antitrust

Donald Turner famously said that he approached territorial and customer restraints on distribution “not hospitably, in the tradition of the common law, but inhospitably, in the tradition of antitrust law.” That statement has become emblematic to many commentators of a crude approach to non-price vertical restraints that improperly considered them per se illegal, denying businesses and consumers the benefits of pro-competitive practices. Turner, however, was more hospitable toward such restraints than his remark suggests. In each of the three most important Supreme Court cases that dealt with non-price vertical restraints—White Motor, Schwinn, and Sylvania—Turner argued for rule of reason treatment because he believed the restraints could be pro-competitive. His work as an academic, a policy maker, and an advocate over the course of more than fifteen years helped move the Court and antitrust enforcers toward the rule of reason. His work also illustrates the way in which Turner influenced the evolution of antitrust more generally by infusing it with economics, tempered by an appreciation of the practical difficulties of administering the law. This approach to antitrust led Turner to advocate for the use of presumptions grounded in economics to give structure to the rule of reason, anticipating later commentary on the “limits” of antitrust.

THE VERTICAL RESTRAINTS PARADOX: JUSTIFYING THE DIFFERENT LEGAL TREATMENT OF PRICE AND NON-PRICE VERTICAL RESTRAINTS

Over the past fifty years anti-trust theorists and economists have advanced several pro-competitive explanations for minimum resale price maintenance, or rpm. In addition, scholars have argued that non-price vertical restraints (such as territorial exclusivity) and rpm have similar effects on price and quantity and should therefore be treated similarly by law. Nearly thirty years ago, the us Supreme Court ruled that non-price vertical restraints should be subject to a rule of reason, acknowledging their pro-competitive potential. Since no explanation has been forwarded to justify treating rpm differently, there seems to be good reason to subject rpm to a rule of reason as well. And, indeed, a divided us Supreme Court has recently decided to overrule the longstanding per se illegality rule that was, for nearly a century, applicable to rpm. In the following I argue that the approach still upheld by policy makers in most jurisdictions, namely the per se prohibition on rpm, is economically justified. I show that all pro-competitive explanations for rpm suffer from a common flaw, the possibility of non-price competition, which challenges rpm's ability to achieve any of the pro-competitive goals attributed to it. I then show that non-price vertical restraints are capable of achieving the pro-competitive goals that rpm is incapable of achieving. This justifies both applying a per se illegality rule to rpm and applying a different rule, namely a rule of reason, to other vertical restraints.

The Vertical Restraints Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

Over the past fifty years anti-trust theorists and economists have advanced several pro-competitive explanations for minimum resale price maintenance, or RPM. In addition, scholars have argued that non-price vertical restraints (such as territorial exclusivity) and RPM have similar effects on price and quantity and should therefore be treated similarly by law. Nearly thirty years ago, the US Supreme Court ruled that non-price vertical restraints should be subject to a rule of reason, acknowledging their pro-competitive potential. Since no explanation has been forwarded to justify treating RPM differently, there seems to be good reason to subject RPM to a rule of reason as well. And, indeed, a divided US Supreme Court has recently decided to overrule the longstanding per se illegality rule that was, for nearly a century, applicable to RPM. In the following I argue that the approach still upheld by policy makers in most jurisdictions, namely the per se prohibition on RPM, is economically justified. I show that all pro-competitive explanations for RPM suffer from a common flaw, the possibility of non-price competition, which challenges RPM's ability to achieve any of the pro-competitive goals attributed to it. I then show that non-price vertical restraints are capable of achieving the pro-competitive goals that RPM is incapable of achieving. This justifies both applying a per se illegality rule to RPM and applying a different rule, namely a rule of reason, to other vertical restraints.

'Twombly', 'Leegin' and the Reshaping of Antitrust

This paper considers the four antitrust decisions in the Supreme Court's 2006 Term. It offers brief discussions of Weyerhaeuser and Credit Suisse. Weyerhaeuser is a small, modest decision. The Court isn't likely to see another predatory bidding case soon and the Court chose to minimize doctrinal complexity by bringing predatory bidding analysis in sync with the Court's prior treatment of predatory pricing in Brooke Group. Credit Suisse too is minimally incremental. In concluding that federal securities law implicitly precluded claims asserting antitrust violations in the sale of new securities, the Court followed its prior decision in Gordon as well as the Court's more recent preference for regulatory schemes over antitrust as seen in Trinko. Pushing antitrust authority toward specialized regulators like the Securities and Exchange Commission broadens the trade-offs that can be made between antitrust concerns and other values and almost certainly expands the circumstances under which industry actors can act collectively. That matters, so Credit Suisse covers more of the economic landscape than Weyerhaeuser, but the decision itself is a small step from prior doctrine. Twombly and Leegin are each, in their own ways, blockbusters. Twombly will appear in case after case, as antitrust defendants try to rely on its new tougher rules for FRCP 12(b)(6) motions. Twombly represents a preference for blunt instruments over sharp edges. The central problem confronted by Twombly is discovery run amok. The Court has the tools in its hands to control that by rewriting the discovery rules and overturning lower court decisions implementing those rules. Twombly suggests that the Court believes that refinement of those rules will fail in controlling discovery and it is willing to pay the price that private plaintiffs will have no good way to get at the best-hidden antitrust conspiracies. Finally, Leegin brings to a close - for now or forever? - the 100-year saga of contractual minimum resale price maintenance. Since its decision in 1911 in Dr. Miles, the Court has confronted this issue again and again in the slightly-refined versions that make up the art of institutional design. Over time, the Court has chipped away at Dr. Miles, first in not finding a violation of Section 1 of the Sherman Act for the unilateral minimum RPM in Colgate in 1919 and in then broadly subjecting nonprice vertical restraints to rule-of-reason treatment in Sylvania in 1977. Given that, on what basis would Dr. Miles survive? That is a question of stare decisis and Leegin ends up in an all-out fight over stare decisis in antitrust. That is new: the Court has been overturning old decisions in antitrust for some time and has done so with little stare decisis fanfare. That suggests that the dispute over stare decisis in Leegin is just a convenient forum for the larger dispute over stare decisis that is percolating through a divided Court. I don't have a full-blown theory of stare decisis but I do suggest why the Court has been mistaken to treat stare decisis in statutory cases differently from that in constitutional cases. The Court has made too little of one of its critical tools in shaping statutes, namely, the power to set a default point for subsequent congressional action. Once we treat the Court's decisions as inputs in subsequent lawmaking, there is greater reason to think that the Court should have a uniform approach to stare decisis across the Constitution and statutes.

Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

Over the past fifty years antitrust theorists and economists have advanced several pro-competitive explanations for minimum resale price maintenance [RPM]. Additionally, scholars have argued that non-price vertical restraints (such as territorial exclusivity) and RPM have similar effects on price and quantity and should therefore be treated similarly by law. Nearly thirty years ago, the Supreme Court ruled that non-price vertical restraints should be subject to a rule of reason, acknowledging their pro-competitive potential. Since no explanation has been forwarded to justify treating RPM differently, there seems to be good reason to rectify the inconsistency and subject RPM to a rule of reason too. And indeed, in a case currently pending before the U.S. Supreme Court the Court has been urged to overrule the longstanding per se illegality rule presently applied to RPM. The petitioners rely, inter alia, on the similarity between RPM and non-price vertical restraints. In the following I argue that RPM is different from other vertical restraints. I show that all pro-competitive explanations for RPM suffer from a common flaw, the possibility of non-price competition, which challenges RPM's ability to achieve any of the pro-competitive goals attributed to it. I then proceed to show that non-price vertical restraints are capable of achieving the pro-competitive goals which RPM is incapable of achieving. This justifies treating RPM differently from other vertical restraints.

The Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

The Vertical Restraints' Paradox: Justifying the Different Legal Treatment of Price and Non-Price Vertical Restraints

Twombly, Leegin, and the Reshaping of Antitrust

This paper considers the four antitrust decisions in the Supreme Court's 2006 Term. It offers brief discussions of Weyerhaeuser and Credit Suisse. Weyerhaeuser is a small, modest decision. The Court isn't likely to see another predatory bidding case soon and the Court chose to minimize doctrinal complexity by bringing predatory bidding analysis in sync with the Court's prior treatment of predatory pricing in Brooke Group. Credit Suisse too is minimally incremental. In concluding that federal securities law implicitly precluded claims asserting antitrust violations in the sale of new securities, the Court followed its prior decision in Gordon as well as the Court's more recent preference for regulatory schemes over antitrust as seen in Trinko. Pushing antitrust authority toward specialized regulators like the Securities and Exchange Commission broadens the trade-offs that can be made between antitrust concerns and other values and almost certainly expands the circumstances under which industry actors can act collectively. That matters, so Credit Suisse covers more of the economic landscape than Weyerhaeuser, but the decision itself is a small step from prior doctrine. Twombly and Leegin are each, in their own ways, blockbusters. Twombly will appear in case after case, as antitrust defendants try to rely on its new tougher rules for FRCP 12(b)(6) motions. Twombly represents a preference for blunt instruments over sharp edges. The central problem confronted by Twombly is discovery run amok. The Court has the tools in its hands to control that by rewriting the discovery rules and overturning lower court decisions implementing those rules. Twombly suggests that the Court believes that refinement of those rules will fail in controlling discovery and it is willing to pay the price that private plaintiffs will have no good way to get at the best-hidden antitrust conspiracies. Finally, Leegin brings to a close - for now or forever? - the 100-year saga of contractual minimum resale price maintenance. Since its decision in 1911 in Dr. Miles, the Court has confronted this issue again and again in the slightly-refined versions that make up the art of institutional design. Over time, the Court has chipped away at Dr. Miles, first in not finding a violation of Section 1 of the Sherman Act for the unilateral minimum RPM in Colgate in 1919 and in then broadly subjecting nonprice vertical restraints to rule-of-reason treatment in Sylvania in 1977. Given that, on what basis would Dr. Miles survive? That is a question of stare decisis and Leegin ends up in an all-out fight over stare decisis in antitrust. That is new: the Court has been overturning old decisions in antitrust for some time and has done so with little stare decisis fanfare. That suggests that the dispute over stare decisis in Leegin is just a convenient forum for the larger dispute over stare decisis that is percolating through a divided Court. I don't have a full-blown theory of stare decisis but I do suggest why the Court has been mistaken to treat stare decisis in statutory cases differently from that in constitutional cases. The Court has made too little of one of its critical tools in shaping statutes, namely, the power to set a default point for subsequent congressional action. Once we treat the Court's decisions as inputs in subsequent lawmaking, there is greater reason to think that the Court should have a uniform approach to stare decisis across the Constitution and statutes.

The Economics of Gasoline Retailing: Petroleum Distribution and Retailing Issues in the U. S.

Gasoline retailing practices in the United States continue to be controversial. This controversy, largely over zone pricing and non-price vertical restraints, occurs in part because integrated refiners use a variety of distribution methods to move their gasoline to the consumer. These different methods can conflict with each other. The use of different retail provisions allows refiners to offer retail outlets across as many markets as possible. Such provisions have been the subjects of antitrust scrutiny, but have not resulted in successful litigation. The reason for the lack of success for antitrust plaintiffs is clear: these actions are not likely to harm consumers.

Choice and Variety in Antitrust Law: A Marketing Perspective

JOSEPH P. GUILTINAN is Professor of Marketing, Mendoza College of Business, University of Notre Dame. Antitrust law is concerned with business conduct that distorts the mix of products and prices that a free market would make available to consumers. Historically, antitrust has drawn its theoretical outlook primarily from economics (see Leary 2001; Scheffman 1996). Accordingly, the focus of antitrust policy and judicial interpretation involving such conduct has been on the consequences for price. When mergers, collusive agreements (such as price fixing), predation, practices that raise rivals’ costs, resale price maintenance, and nonprice vertical restraints (such as tying and exclusive dealing) receive scrutiny, these practices have traditionally been evaluated in terms of their effect on prices. However, the major impact of those practices of concern to antitrust might well be on nonprice dimensions of choice rather than on prices (Lande 2001). Thus, in recent years, arguments have been put forth that both antitrust law and consumer protection law would be well served by adopting choice as their ultimate goal (see Averitt and Lande 1997; Lande 2001). The prospective choice-centered view is motivated by the reality that, in many sectors of the economy, nonprice attributes of products dominate consumer choice processes (Leary 2001). In addition, from a competitive perspective, price is only one of a subset of strategic variables that firms use to acquire and retain customers. Thus, conduct that reduces a rival’s ability to compete on the basis of distinctive features and benefits warrants significant antitrust attention. These are realities that have long been recognized by marketing scholars. However, antitrust is largely unaware of marketing theories and empirical regularities regarding consumer and firm decision making that might provide the basis for a truly choice-centered antitrust policy. The first purpose of this article is to demonstrate how the existing knowledge base of marketing (and allied business disciplines) can inform antitrust on the issues of choice and variety. Marketing scholars have expertise on (1) how consumers make choices from a variety of options and (2) how firms make choices on what variety to offer. Many scholars who have contributed to knowledge in these areas may not be fully aware of the public policy relevance of their research. However, as noted in Table 1, marketing perspectives can substantially enhance antitrust analyses when business conduct threatens choice on nonprice dimensions. Because scholarship in marketing has historically adopted a managerial perspective, little of the established knowledge has been focused on public policy questions. Thus, a second purpose of this article is to identify specific research opportunities for marketing scholars to contribute to antitrust policy. Because the two dimensions (i.e., consumer choice and supplier choice) represent opposite sides of the market exchange and have been studied by different scholars applying distinct research methods, I treat them separately. First, I examine how economics and marketing differ in their conceptualization of consumer choice. These differences result in distinct views on (1) the basis for identifying the set of competitors in a market and (2) the value to consumers of having a variety of choices. Marketing knowledge can inform public policy on these issues, and I identify some critical questions marketing scholars might address to develop antitrust thought on these points. Subsequently, I contrast economic and marketing views on the forces that determine the variety supplied. In economic theory, variety is a function of economies of scale and of the competitiveness of the market. I show that estimates of the variety that might be expected in a market and an understanding of the business motives of firms in setting variety policy cannot be reliably developed without analyses from marketing (and other business disciplines), which incorporate consideration of firms’ unique resources and contexts. Such analyses can assist antitrust judgments about market power when competition is based on nonprice attributes of products.

Fostering Competition Law and Policy: A Facade of Taiwan's Political Economy

Fostering Competition Law and Policy: A Facade of Taiwan's Political Economy

Major League Baseball

This article presents evidence that team owners in Major League Baseball (MLB) set ticket prices as profit-maximizing monopolists. However, the evidence also indicates that the cost of other forms of entertainment affects the demand for baseball tickets as economic theory would predict. The interpretation is that team owners face negatively sloped demand curves for baseball tickets but they must compete for the consumer’s entertainment dollar in a broader market for entertainment services. The recent change in MLB’s territorial restrictions also had some impact on ticket pricing. The impact, however, is inconsistent with the hypothesis that it enhanced the team owners’ market power. Instead, the evidence is consistent with the hypothesis that the change increased the demand for baseball tickets. One plausible explanation is that it provided greater incentive for individual team owners to promote their teams against other forms of entertainment. This argument merits additional consideration in future research and may provide some insight into how nonprice vertical restraints in other markets affect economic performance.

Advertising as special service provision under non-price vertical restraints: exclusive territories in beer distribution

This article presents statistical evidence which supports Lester Telser's 1960 hypothesis, that when vertical restraints are made illegal, intrabrand competition results which diminishes the provision of point-of-sale, special services. This results because of the public goods problem exhibited by the special services. Increased special service provision by the national manufacturer must then substitute for the special service provision left unfilled by the wholesaler. Evidence relating to the efficacy of such substitution is also presented.

Why Should Manufacturers Want Fair Trade II?

Previous articleNext article No AccessWhy Should Manufacturers Want Fair Trade II?Lester G. TelserLester G. Telser Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by The Journal of Law and Economics Volume 33, Number 2Oct., 1990 Sponsored by The University of Chicago Booth School of Business and The University of Chicago Law School Article DOIhttps://doi.org/10.1086/467211 Views: 16Total views on this site Citations: 22Citations are reported from Crossref Copyright 1990 The University of ChicagoPDF download Crossref reports the following articles citing this article:Yuyun Zhong, Wenjing Shen, Oben Ceryan Information provision under showrooming and webrooming, Omega 114 (Jan 2023): 102724.https://doi.org/10.1016/j.omega.2022.102724Nikolay A. Dentchev Inclusive Business Models: Building Business Ecosystems for Resolving Deep-Rooted Sustainability Problems, (Nov 2020): 561–570.https://doi.org/10.1007/978-3-319-95867-5_42Nikolay A. Dentchev Inclusive Business Models: Building Business Ecosystems for Resolving Deep-Rooted Sustainability Problems, (Jun 2020): 1–10.https://doi.org/10.1007/978-3-319-71058-7_42-1Roger D. Blair, Joseph Whitman Resale price maintenance: A managerial perspective, Managerial and Decision Economics 39, no.77 (Sep 2018): 751–760.https://doi.org/10.1002/mde.2920John S. Heywood, Shiqiang Wang, Guangliang Ye Resale price maintenance and spatial price discrimination, International Journal of Industrial Organization 57 (Mar 2018): 147–174.https://doi.org/10.1016/j.ijindorg.2018.02.001David E. Mills Inducing Cooperation with a Carrot Instead of a Stick, Review of Industrial Organization 50, no.22 (Jan 2017): 245–261.https://doi.org/10.1007/s11151-017-9563-2Tommy Staahl Gabrielsen, Bjørn Olav Johansen Resale Price Maintenance with Secret Contracts and Retail Service Externalities, American Economic Journal: Microeconomics 9, no.11 (Feb 2017): 63–87.https://doi.org/10.1257/mic.20140280Junji Xiao, Heng Ju The determinants of dealership structure: Empirical analysis of the Chinese auto market, Journal of Comparative Economics 44, no.44 (Nov 2016): 961–981.https://doi.org/10.1016/j.jce.2016.04.001Geoff Meeks Elzinga Frederic M. Scherer on vertical agreements: staking out the middle ground on resale price maintenance°, ECONOMIA E POLITICA INDUSTRIALE , no.11 (Mar 2014): 105–119.https://doi.org/10.3280/POLI2014-001006Surinder Tikoo, Bruce Mather The changed legality of resale price maintenance and pricing implications, Business Horizons 54, no.55 (Sep 2011): 415–423.https://doi.org/10.1016/j.bushor.2010.12.001Giorgio Zanarone Vertical Restraints and the Law: Evidence from Automobile Franchising Zanarone, The Journal of Law and Economics 52, no.44 (Jul 2015): 691–700.https://doi.org/10.1086/595765Hsiu-Li Chen Gray Marketing: Does It Hurt the Manufacturers?, Atlantic Economic Journal 37, no.11 (Oct 2008): 23–35.https://doi.org/10.1007/s11293-008-9154-6Pierre-Olivier Pineau Commerce équitable, Gestion Vol. 33, no.11 (Mar 2008): 50–58.https://doi.org/10.3917/riges.331.0050Ricardo M. Paredes Vertical Control in Newly Regulated Economies, Latin American Business Review 3, no.11 (Jan 2002): 91–113.https://doi.org/10.1300/J140v03n01_05Lester G. Telser Resale Price Maintenance, (Jan 2017): 1723–1727.https://doi.org/10.1007/978-1-349-74173-1_326 David A. Butz and Andrew N. Kleit Are Vertical Restraints Pro‐ or Anticompetitive? Lessons from Interstate Circuit Butz/Kleit, The Journal of Law and Economics 44, no.11 (Jul 2015): 131–160.https://doi.org/10.1086/320277Peter Newman R, (Jan 1998): 205–394.https://doi.org/10.1007/978-1-349-14286-6_3Franklin G. Mixon, Kamal P. Upadhyaya Advertising as special service provision under non-price vertical restraints: exclusive territories in beer distribution, Applied Economics 28, no.44 (Oct 2010): 433–439.https://doi.org/10.1080/000368496328560Benjamin Klein The economics of franchise contracts, Journal of Corporate Finance 2, no.1-21-2 (Oct 1995): 9–37.https://doi.org/10.1016/0929-1199(95)00003-Q Tim R. Sass , and David S. Saurman Mandated Exclusive Territories and Economic Efficiency: An Empirical Analysis of the Malt-Beverage Industry, The Journal of Law and Economics 36, no.1, Part 11, Part 1 (Oct 2015): 153–177.https://doi.org/10.1086/467269John E. Calfee, Paul H. Rubin Nontransactional data in managerial economics and marketing, Managerial and Decision Economics 14, no.22 (Mar 1993): 163–173.https://doi.org/10.1002/mde.4090140208Joseph T. Mahoney The choice of organizational form: Vertical financial ownership versus other methods of vertical integration, Strategic Management Journal 13, no.88 (Nov 1992): 559–584.https://doi.org/10.1002/smj.4250130802

Exclusive Dealing, Limiting outside Activity, and Conflict of Interest

Exclusive is one of a number of non-price that have become the subject of considerable scrutiny and rethinking, both in the courts and in the academic literature [2; 8; 10; 17]. Because of its association with antitrust law, the emphasis of the literature [3; 7; 13; 16; 21] has been on whether can enhance or protect a firm's market power.' Exclusive and related restrictions on agent activities, however, are far more widespread than can credibly be attributed to antitrust considerations or interfirm strategic behavior. The range of instances where exclusive dealing broadly construed applies is quite large, including the familiar manufacturer/retailer relationship as well as other situations where there may be a conflict of interest. The decision to hire a worker to do a job or to have the job done by an independent contractor could be interpreted as the decision whether a firm wants its workers to deal their labor. The exclusivity question arises in less formal or familiar settings as well. Should one, for example, permit a babysitter to have friends visit, or should her attention be exclusively directed toward one's children? Should a university permit its faculty to engage in consulting or non-university sponsored research, or should it lay down rules restricting the time available for outside or the types of research that can be carried out? Antitrust courts and legal commentators over the past ten years, especially since Sylvania [4], have come to view non-price vertical restraints more benignly than in the past [2, 299-304; 15; 17; 18; 20]. Benign neglect, however, offers no help to a firm wondering whether to institute dealing. Not only may the costs and benefits of doing so be subtle, but the decision may be controversial among the affected parties. In the conventional exclusive dealing case, retailers may not want a major supplier to cut them off if they continue to sell another manufacturer's product, and will likely demand to be compensated for their lost business opportunities. Exclusive may be viewed as the limiting version of a policy to limit activities by agents. The purpose of this paper is to set out a very general neoclassical choice framework to discover conditions in which or limitations on activities to mitigate conflicts of interest can enhance the operating efficiency of a vertical relationship. A specific goal

The Nature of Vertical Restraints

Total Surplus is the best metric for social welfare. It is the sum of Producer, Retailer and Consumer Surplus (See Diagrams) – not just the sum of Producer and Consumer Surplus as assumed in most economists’ models that make the false assumption that the retail sector is perfectly competitive in categories with differentiated products.There is an inverse association between the margins of manufacturers and retailers with both strong and weak brands. With strong brands consumers are more disposed to switch stores within brand should a retailer fail to carry the brand or price it competitively. Manufacturers have high margins and retailers thin ones. With weak brands consumers are more disposed to switch brands within store, and the margin relationship is reversed. But Bowman’s mutual dependence scenario in which there is only modest market power at both stages encourages RPM where margins at both stages are elevated and thus positively related.Competition has both a vertical and a horizontal dimension. There is both a complementary and a competitive relationship between firms in a vertical relationship.The Chicago School attributes differences in retailers’ prices to free riding, but the differences have often due to the greater efficiencies embodied in a succession of new retailing formats.When the Agencies have brought actions against a powerful manufacturer that had adopted vertical restraints, social welfare has typically been advanced. But actions against weak brands are pointless, because they cannot produce beneficial welfare outcomes.The article presents the views of many contributions to the literature including, Bork, Posner, Scherer, Bowman, Palamountain, Schumpeter, Baxter Chamberlin, Easterbrook, Bordon, Salop, Scheffman, Fogg-Meade, Marshall, Hefflebower, Grether, Overstreet, Lee, Corey, Marvel, Oster, Telser, Seligman, Bonoma, Bucklin, Yamey, Pickering and Pitofsky.The article examines Monsonto, Colgate, Schwinn, Schwegmann, General Electric, Russell Stover, Corning, Levi Strauss as well as case studies of RPM and non-price vertical restraints in Lydia Pinkham’s Vegetable Compound, Light Bulbs, and in the U.K.

The "Competitive Advantages" Explanation for Intrabrand Restraints: An Antitrust Analysis

This article argues that antitrust doctrine concerning intrabrand restrictions is unsatisfactory because the economic theory of intrabrand restrictions has been only partially developed and articulated. An unfilled and largely unacknowledged analytical gap exists between the view that intrabrand restraints are generally anticompetitive and the view that intrabrand restraints are generally efficiency-producing. That gap is the failure to explore how a manufacturer benefits from intrabrand restraints other than by increasing the profitability of his dealers. This article attempts to fill that gap by drawing on the theory of imperfect competition to explain why manufacturers find it profitable to restrict intrabrand competition in an anticompetitive way. Using this analysis, the article explains why price restraints should indeed be treated differently from nonprice restraints2s and formulates an analytial approach under the rule of reason for addressing nonprice vertical restraints. Non-economic analyses are possible, but are not treated here. The approach of this article rests on economic theory.