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Vertical Restraints: A Look Ahead

By  |  July 29, 2013
Vertical Restraints: A Look Ahead

Paulo da Silveira, Vinicius Marques de Carvalho, Marcos Paulo Verissimo, Jul 28, 2013

Competition authorities worldwide are constantly facing the challenges involved in the design of an effective competition policy towards vertical restraints. This may be explained by two main reasons. First, vertical restraints are ambiguous by nature, since they may cause anticompetitive impacts and, at the same time, generate important efficiencies. Secondly, vertical restraints may take a large variety of forms, such as resale price maintenance, exclusivity clauses, loyalty discounts and tie-in sales, which may all produce similar effects. In general, vertical restraints are simply viewed as competition restrictions in commercial agreements at different levels of the production and distribution chains, as opposed to horizontal restraints which are related to agreements between direct competitors.

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    In addition, one may ask if developing countries should take the opportunity to address particular problems in designing their competition policy towards vertical restraints. In a certain way, a possible lenient approach of certain developed countries towards some vertical restraints may be justified by their placement in a given economy, which may not be the same when analyzed through a different set of economic standards. Developing countries may need to contextualize their approach to vertical restraints considering particular elements, such as a recent introduction of competition in certain sectors, a history of economic concentration, the presence of state-owned enterprises and regulatory restraints in some markets, a weak capacity of innovation, as well as inequality in general and the need to foster mobility and access.

    This paper will first analyze the current Brazilian framework for vertical restraints, including the new Brazilian legal provisions for vertical restraints control and a few past cases analyzed by the Brazilian Administrative Council for Economic Defense – CADE (I). Then, a look ahead of vertical restraints through the lens of resale price maintenance (RPM) practices will be carried out, considering RPM practices just recently had its first case condemnation in Brazil – this should likely indicate a direction for future similar cases (II).

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