Introduction

Vertical relationships between producers and retailers or wholesalers often involve more or less complex contracting arrangements, broadly named vertical restraints. These arrangements can simply consist of non-linear tariffs, such as franchise fees, quantity forcing or pricing requirements (quotas, resale price maintenance), but they may also include the assignment of exclusive territories or exclusive dealing, tie-ins, etc. This chapter is concerned with investigating the rationale for these restrictions and showing that there are important circumstances under which these restrictions have a significant anticompetitive effect, at the upper level as well as at the lower one.

The legal status of these restraints is not very clear, as it differs among countries and changes over time. From the economic point of view, two main streams of ideas have emerged from the beginning: on the one hand, some produce the argument that, as markets are competitive and as these arrangements can be adopted only if joint profits are increased, there must necessarily be a gain in efficiency; on the other side, some emphasize the anticompetitive effects of these restraints at the lower (retailers' or wholesalers') level.

Recently, some efforts have been made in order to formalize the efficiency argument (see for example Mathewson and Winter, 1983, 1984).