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A Comparative Study of United States and European Union Approaches to Vertical Policy

18 Pages Posted: 6 Apr 2005  

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty

Luke Froeb

Vanderbilt University - Strategy and Business Economics

Daniel P. O'Brien

Bates White Economic Consulting

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics

Date Written: April 5, 2005

Abstract

In recent years divergence between United States ("US") and European Union ("EU") competition policy has garnered a lot of attention. One particular area where these differences are evident is the treatment of vertical restraints. In the USA, an antitrust plaintiff must show that a vertical agreement is likely to harm competition - that is, reduce economic welfare. EU competition law, on the other hand, places a lower burden on the European Commission ("EC"). The EC recently has promulgated a block exemption regulation ("BER") that defines circumstances under which vertical arrangements are automatically exempted under Article ("Art.") 81(3); still, European competition law condemns many more vertical agreements than does US antitrust law. "Dominant" firms entering into vertical agreements receive even harsher treatment under EU competition law. Because the Guidelines to the BER explicitly exclude dominant firms from exemption under Art. 81(3), it appears that Art. 81 proscribes dominant firms from entering into vertical agreements that restrict the behavior of the contracting parties. Additionally, Art. 82 discourages dominant firms from entering into vertical agreements.

This paper uses a Bayesian framework to analyze the disparate treatment of vertical arrangements in the USA and EU. The practice of antitrust is the problem of inferring the competitive consequences of various types of market conduct. We argue that an optimal enforcement estimator would minimize an expected social loss function, where the expectation is taken over the posterior probability that a given practice is anticompetitive, given evidence in a particular case. Empirical literature informs priors, whereas theory informs the likelihood. We show how differences in antitrust treatment of vertical practices can be explained by different loss functions, even when each jurisdiction shares the same beliefs regarding the theoretical and empirical effects of vertical restraints.

Suggested Citation

Cooper, James C. and Froeb, Luke and O'Brien, Daniel P. and Vita, Michael, A Comparative Study of United States and European Union Approaches to Vertical Policy (April 5, 2005). Vanderbilt Law and Economics Research Paper No. 05-11. Available at SSRN: https://ssrn.com/abstract=699582 or http://dx.doi.org/10.2139/ssrn.699582

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-9582 (Phone)

Luke M. Froeb (Contact Author)

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Daniel P. O'Brien

Bates White Economic Consulting ( email )

1300 I Street NW
Washington, DC 20005
United States

Michael Vita

U.S. Federal Trade Commission - Bureau of Economics ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

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