Vertical agreements are agreements between businesses operating at different levels of the supply chain, such as suppliers and manufacturers or manufacturers and retailers. These agreements aim to coordinate the activities of the businesses involved and promote more efficient distribution of goods and services. However, some vertical agreements can be anti-competitive and may harm consumers.
In order to prevent anti-competitive behavior, competition law regulates certain aspects of vertical agreements. One key aspect is the prohibition of certain types of restrictions, such as those that limit the ability of businesses to sell to certain customers or in certain territories.
To test your knowledge on vertical agreements, here is a multiple-choice question: Which of the following is not an example of vertical agreement?
a) Exclusive dealing
b) Resale price maintenance
c) Territorial restrictions
d) Price fixing
The correct answer is d) Price fixing. Price fixing is a type of horizontal agreement, which occurs when businesses at the same level of the supply chain collude to set prices. This type of behavior is typically viewed as highly anti-competitive, as it eliminates competition and results in higher prices for consumers.
Exclusive dealing refers to agreements in which a supplier requires a buyer to purchase all or most of its products exclusively from that supplier. This type of agreement can be anti-competitive if it restricts the buyer`s ability to purchase from other suppliers.
Resale price maintenance occurs when a supplier requires a buyer to sell its products at a minimum price. This type of agreement can also be anti-competitive, as it may prevent downstream retailers from competing on price and results in higher prices for consumers.
Territorial restrictions are agreements that limit the ability of a buyer to sell products in certain geographic areas. This type of agreement can also be anti-competitive if it restricts the ability of the buyer to compete in certain markets.
In conclusion, while vertical agreements can promote efficiency and coordination in the supply chain, certain restrictions within these agreements can be anti-competitive and harm consumers. Therefore, it is important to understand the different types of vertical agreements and the restrictions that are prohibited under competition law.