Chapter 10: Market Dominance and Vertical Restraints
I Introduction We made clear at the beginning of Chapter 9 the distinction between vertical integration and vertical restraints. In this chapter our major concern is to analyse the effect that a variety of vertical restraints imposed by firms at one stage of the production process on their suppliers or distributors can have on market dominance, and then to consider the antitrust response to these practices. The term ‘vertical restraint’ correctly captures the essence of the process: one firm in a vertical relationship with another imposes conditions over the terms on which it is prepared to trade. Thus a manufacturer may insist that any retailer handling his products charges a specific price, a practice variously termed ‘resale price maintenance’ or ‘fair trade’. Some firms may allocate a particular geographic region to a distributor, whose sales must be confined to that region; others may insist that, if distributors are to handle one of its products, they must also handle another (a tying arrangement) or they must also take the full product line (full-line forcing). Again, firms may insist and give special inducements to sweeten their insistence that distributors handle only their product (exclusive dealing) and, if they feel that the distributor is not keeping to the bargain, refuse to deal with the firm. In short, the variety of industry ensures a great diversity of vertical arrangements. The complexity and ingenuity that firms often bring to these relationships with other traders suggest that an important part of their profitability hangs on their...
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