intensive and exclusive distribution
Chapter 2
Review of Related Literature and Studies
Foreign Studies
According to the report made by Dr. Cristina Caffarra and Prof. Kai-Uwe Kühn, University of Michigan from CRA International, vertical restraints have traditionally raised concerns in antitrust enforcement because they tend to limit the degree of competition between retailers distributing products of the same manufacturer (so-called “intra-brand” competition). However, from an economic point of view it is puzzling that a manufacturer would ever restrict competition between retailers: any such restriction of competition would increase the retailers’ (downstream) margins at the expense of the manufacturer’s own (upstream) margin. Everything else equal, manufacturers would like very intense competition between their retailers in order to extract maximal profits from their products. This basic insight has not only undermined the traditional view of vertical restraints, but also posed a challenge to economic theory. Why would manufacturers impose competition-reducing constraints (such as exclusive dealing, territorial exclusivity, selective distribution, etc.) on retailers if these increase the profits of retailers at the expense of manufacturers? The economic literature has studied this question extensively, and identified several efficiency reasons why manufacturers may want to guarantee downstream margins in order to induce retailer behavior that increases demand overall. In this section they discuss the many facets of this efficiency argument, and contrast it with anticompetitive theories of vertical restraints. They conclude that it is much more likely that a manufacturer would reduce competition between its retailers when it is motivated by efficiency concerns. The available empirical research confirms that vertical restraints reduce intra-brand competition but at the same time also tend to increase sales. The empirical literature thus largely supports the efficiency explanations of vertical
Review of Related Literature and Studies
Foreign Studies
According to the report made by Dr. Cristina Caffarra and Prof. Kai-Uwe Kühn, University of Michigan from CRA International, vertical restraints have traditionally raised concerns in antitrust enforcement because they tend to limit the degree of competition between retailers distributing products of the same manufacturer (so-called “intra-brand” competition). However, from an economic point of view it is puzzling that a manufacturer would ever restrict competition between retailers: any such restriction of competition would increase the retailers’ (downstream) margins at the expense of the manufacturer’s own (upstream) margin. Everything else equal, manufacturers would like very intense competition between their retailers in order to extract maximal profits from their products. This basic insight has not only undermined the traditional view of vertical restraints, but also posed a challenge to economic theory. Why would manufacturers impose competition-reducing constraints (such as exclusive dealing, territorial exclusivity, selective distribution, etc.) on retailers if these increase the profits of retailers at the expense of manufacturers? The economic literature has studied this question extensively, and identified several efficiency reasons why manufacturers may want to guarantee downstream margins in order to induce retailer behavior that increases demand overall. In this section they discuss the many facets of this efficiency argument, and contrast it with anticompetitive theories of vertical restraints. They conclude that it is much more likely that a manufacturer would reduce competition between its retailers when it is motivated by efficiency concerns. The available empirical research confirms that vertical restraints reduce intra-brand competition but at the same time also tend to increase sales. The empirical literature thus largely supports the efficiency explanations of vertical