Economics of Vertical Market Competition

Summary

Recent research on the industrial organisation of the food industries has largely focussed on horizontal interactions (e.g. manufacturer versus manufacturer); relatively little attention has focussed on vertical interactions (e.g., manufacturers versus retailers). Theoretical developments in the industrial organisation literature on vertical restraints suggests that the welfare outcomes from such interactions are ambiguous. Moreover, competition authorities in many developed countries have take an active interest in the use of vertical restraints. This paper therefore considers the UK Monopolies and Merger and EC Commissions’ arbitrations on vertical restraints in the food sector in the context of recent developments in the industrial organisation literature. In general, the UK authority’s assessments have reflected the ambiguity characteristic of the theoretical literature. However, the EC Commission’s rulings have generally taken a negative view, the principal difference between the UK and EC decisions largely reflecting the different forms of vertical restraints these authorities have attended to.