Toward a Unified Theory of Exclusionary Vertical Restraints
Daniel A. Crane
University of Michigan Law School
European University Institute - Department of Law (LAW)
October 7, 2010
Southern California Law Review, Forthcoming
U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 10-023
U of Michigan Public Law Working Paper No. 218
The law of exclusionary vertical restraints - contractual or other business relationships between vertically related firms - is deeply confused and inconsistent in both the United States and the European Union. A variety of vertical practices including predatory pricing, tying, exclusive dealing, price discrimination, and bundling are treated very differently based on formalistic distinctions that bear no relationship to the practices’ exclusionary potential. We propose a comprehensive, unified test for all exclusionary vertical restraints that centers on two factors, foreclosure and substantiality. We then assign economic content to these factors. A restraint forecloses if it denies equally efficient rivals a reasonable opportunity to make a sale or purchase (depending on whether the restraint affects access to customers or inputs). Market foreclosure is substantial if it denies rivals a reasonable opportunity to reach minimum viable scale. Where substantial foreclosure is shown, the restraint should generally be declared illegal unless it is justified by efficiencies that exceed the restraint’s anticompetitive effects.
Number of Pages in PDF File: 45
Keywords: European Union, vertical restraints, substantial foreclosure
JEL Classification: K21Accepted Paper Series
Date posted: October 7, 2010 ; Last revised: November 2, 2010
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