Private Labels, Dual Distribution and Vertical Restraints: An Analysis of the Competitive Effects
PRIVATE LABELS, BRANDS AND COMPETITION POLICY, THE CHANGING LANDSCAPE OF RETAIL COMPETITION, Ariel Ezrachi & Ulf Bernitz, eds., 2008
Posted: 8 Nov 2009
Date Written: 2008
This chapter explores how participation of a retailer in the supplier’s market via a private label and participation of a supplier in the retail market via dual distribution impacts on the anticompetitive effects of vertical restraints.
The existence of a private label can impact on the anticompetitive effect of vertical restraints in two principle ways. On one hand, the private label often constitutes presence of the retailer in the supplier’s market, thereby creating horizontal competition between the retailer and the supplier in the supplier’s market. Restraints limiting the retailer’s operation of the private label, therefore, resemble horizontal restraints among competitors and deserve harsher antitrust treatment than purely vertical restraints. On the other hand, as this chapter shows, if a retailer and a supplier adopt vertical restraints that do not limit the retailer’s ability to operate his private label, the existence of the private label could actually weaken the anticompetitive effect of all vertical restraints but for exclusive distribution.
Interestingly, in contrast to this latter finding, the EC Commission Block Exemption for Vertical Restraints treats most vertical restraints in the presence of a private label as horizontal in nature, thereby, for the most part, disqualifying them from the exemption. Accordingly, a change in the EC block exemption’s application is warranted.
On the other hand, as this chapter shows, the block exemption’s treatment of dual distribution cases, in which the supplier party to a vertical restraint also controls a distribution outlet, is too lenient with respect to certain types of vertical restraints. In particular, restraints that eliminate competition between the supplier’s retail outlet and competing retailers may harm competition more than similar vertical restraints absent dual distribution. This is particularly shown to be the case when the supplier’s profits stem from charging an above-cost price per unit. Similarly, with regard to non-compete clauses and price matching policies, account should be taken of the supplier’s retail unit when calculating the percentage of the retail market that is foreclosed from competing suppliers. In fact, exclusive distribution is the only vertical restraint in which the presence of dual distribution warrants a more lenient treatment of the vertical restraint.
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