If you`re a business owner or an entrepreneur, it`s crucial to understand the basic principles of competition law. One of the main provisions of competition law is vertical agreements. In this article, we`ll explore what vertical agreements are and how they can impact businesses.
Vertical agreements are agreements between two or more businesses that operate at different levels of the supply chain. For instance, a manufacturer and a retailer might enter into a vertical agreement to distribute their products. The agreement stipulates the terms and conditions of the transaction, such as the price, quantity, delivery date, and quality of the goods.
Vertical agreements can benefit both parties by reducing transaction costs, improving efficiency, and enhancing market access. However, vertical agreements can also have anticompetitive effects, such as limiting access to markets, raising prices, or restricting output. For this reason, competition law regulates vertical agreements to ensure their compliance with fair competition principles.
Under the European Union`s competition law, vertical agreements are subject to the block exemption regulation (BER). This regulation exempts certain types of vertical agreements from the prohibition of anticompetitive practices as long as they meet certain criteria. These criteria include a market share threshold, a non-binding resale price, and no restrictions on passive sales to end-users.
Vertical agreements that do not meet the criteria of the BER are subject to individual assessment by competition authorities. The assessment involves a balancing of the pro-competitive and anticompetitive effects of the agreement. The agreement might be allowed if its benefits outweigh its drawbacks, or it might be prohibited if its anticompetitive effects are significant.
There are a few examples of anticompetitive vertical agreements that competition authorities have tackled in recent years. One example is the case of Microsoft and its tying of Internet Explorer to Windows operating system. This bundling practice was found to have foreclosed competition in the web browser market and resulted in a prohibition by the European Commission.
Another example is the case of booking.com and its parity clauses that prevented hotels from offering lower prices on other online platforms. This practice was found to have restricted competition in the online travel agency market and resulted in a commitment by booking.com to remove the clauses.
In conclusion, vertical agreements are an essential part of the supply chain, but they can also have anticompetitive effects. Businesses need to comply with competition law principles and ensure that their agreements are fair and beneficial to consumers. Competition authorities play a crucial role in enforcing competition law and promoting fair competition in the market.
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