The Competitive Effects of Vertical Agreements
For many years, there were few distinctions drawn between horizontal and vertical agreements. Both were considered anticompetitive and subject to per condemnation under the antitrust laws. Recently, however, this approach has come under attack, and what was once the conventional wisdom is no longer so. Indeed, there is growing acceptance of the view that vertical agreements can rarely have anticompetitive consequences. Per legality would then be the appropriate standard. In this paper, we investigate the competitive implications of a particular vertical agreement: the imposition of dealing requirements by a manufacturer on his distributors. However, to maintain the focus of the analysis, we do not consider ultimate welfare gains or losses. In an early application of economic analysis to this practice, Aaron Director and Edward Levi (1956) suggest that dealing would be anticompetitive if it raised entry costs for rivals. Our object, following this conjecture (see their p. 293), is to examine the market conditions under which dealing impedes entry. Howard Marvel (1982) dealt with the practice of dealing. He provides an efficiency rationale for dealing, ignores the prospect that anticompetitive effects may follow, and concludes that exclusive dealing ought therefore to be treated as legal, per se (p. 25). This paper examines the possible anticompetitive effects neglected by Marvel. I. Market Conditions for Exclusive Dealing
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