For a Rigorous ‘Effects-Based’ Analysis of Vertical Restraints Adopted by Dominant Firms: A Comparison of EU and Brazilian Competition Law

Abstract

This short paper summarizes the main findings of a comprehensive study the authors conducted on the way “vertical restraints” adopted by dominant firms (with a focus on exclusive dealing, rebates and discounts and tying) have been treated by enforcement agencies and courts in the European Union (“EU”) and in Brazil. A comparative analysis of the treatment of vertical restraints in these two jurisdictions is particularly interesting for the following reasons. First, the EU competition law system is mature, but the European Commission (the “Commission”)’s approach to vertical restraints has evolved in recent years notably through the Guidance Paper issued in 2008, promoting an effects-based approach to such restraints. The Brazilian competition law system is not as mature as the EU system, but Brazil has established itself as one of the key antitrust players among the fast-growing economies. Although less mature than its EU counterpart, Brazil has adopted an effects-based approach to vertical restraints for a long time, the problem being the inconsistencies that exist in the implementation of that approach. Second, the EU system and the Brazilian system rely on an administrative enforcement agency, and the Brazilian system has been influenced by the European model. The comparative approach is thus likely to be fruitful. Among the main policy conclusions of our study is that competition authorities and courts should not apply per se illegality rules to vertical restraints adopted by dominant firms. Instead, they should adopt tests seeking to identify the pro- and anti-competitive effects of a given conduct and balance them. No vertical restraint should be banned without the demonstration that it affects competition and creates consumer harm. Such effects-based analysis must be developed according to a solid analytical framework in order to establish consistent standards of proof. Indeed, in the absence of such framework, even with an alleged effects-based approach, authorities may end up developing inconsistent standards of proof with decisions outcomes that may come close to a form-based analysis, as the Brazilian experience illustrates.

Keywords: Competition Policy, Antitrust, Vertical Restraints, Effects-Based Approach, EU, Brazil

JEL Classification: KL21