Vertical restraints in the us theory and courts' practice

Abstract

The US theory and courts' practice contributed to better understanding of effects of vertical restraints to overall and consumers' welfare. The Chicago school was the first to explain beneficial effects of vertical agreements, arguing for more lenient application of competition rules. Prof. Bork explained that restrictive clauses in vertical agreements serve producers to secure provision of pre- and after-sale services by his distributors, thus eliminating the free-rider problem and increasing the product's quality and consumers' satisfaction. Following the Chicago school views, the US Supreme Court abrogated the per se prohibition of vertical restraints in GTE Sylvania and Leegincases. Further studies carried out by the Post-Chicagoans indicated that vertical restraints cannot be treated equally. In most cases the resale price maintenance clause is not economically justified, since the goal of maintaining the quality of pre- and af­ter-sale services can be achieved by contracting less restrictive clauses in vertical agreements. Regarding competition effects of vertical restraints in aftermarkets, the Post-Chicagoans asserted that several factors cumulatively create an opportunity for a producer to leverage his market power existing on the market for primary product to the after-sale market. This view was confirmed by the US Supreme Court in the Kodak case.

Keywords

• vertical restraints
• competition law
• resale price maintenance
• aftermarket services