Abstract and Keywords
Firms in a vertical relationship strike contracts that maximize joint surplus. If an increase in surplus from vertical restraints results from effects within the supply chain itself, competition policy should not intervene even if the restraints raise prices. Vertical restraints typically benefit a supply chain by correcting incentives of downstream firms to make self-interested decisions that do not serve the collective interest of the chain. In a wide variety of circumstances, for example, retailers compete excessively in prices rather than non-price dimensions such as sales effort. Vertical restraints can, on the other hand, have anticompetitive effects by facilitating cartelization of an upstream or downstream market. Only where vertical restraints negatively affect competition between supply chains should the law intervene. Antitrust law in the US increasingly reflects these principles, while the law in the EU remains overly interventionist.
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