Canadian COMPETITION & ANTITRUST LAW

Vertical agreement. OECD, Reviews of Regulatory Reform, Regulatory Reform in Canada, The Role of Competition Policy in Regulatory Reform (2002): “[Vertical agreements] try to control aspects of distribution. The reasons for concern are the same—that the agreements might lead to increased prices, lower quantity (or poorer quality), or prevention of entry and innovation. Because the competitive effects of vertical agreements can be more complex than those of horizontal agreements, the legal treatment of different kinds of vertical agreements varies even more than for horizontal agreements. One basic type of agreement is resale price maintenance: vertical agreements can control minimum, or maximum, prices. In some settings, the result can be to curb market abuses by distributors. In others, though, it can be to duplicate or enforce a horizontal cartel. Agreements granting exclusive dealing rights or territories can encourage greater effort to sell the supplier’s product, or they can protect distributors from competition or prevent entry by other suppliers. Depending on the circumstances, agreements about product combinations, such as requiring distributors to carry full lines or tying different products together, can either facilitate or discourage introduction of new products. Franchising often involves a complex of vertical agreements with potential competitive significance: a franchise agreement may contain provisions about competition within geographic territories, about exclusive dealing for supplies, and about rights to intellectual property such as trademarks.”

Vertical merger. OECD, Policy Roundtable, Vertical Mergers (2007): “Prior to a vertical merger the two firms are either in, or there is a possibility that they might be in, a customer-supplier relationship.  Pre-transaction, the firms are located at different stages of production or distribution, with one producing an input used by the other.  Post-merger, the two separate firms are replaced by a single firm that now performs both activities or stages of production.  A vertical merger replaces an actual or potential market transaction, where an input is traded between firms, with a transfer within the same firm. … A vertical merger can involve integration forward, where the upstream firm (pre-merger the seller) acquires a downstream firm (pre-merger the buyer), for example the acquisition by a shoe manufacturer of a shoe retailer or an automobile manufacturer of a taxi service or car rental firm.  A vertical merger involving backwards integration occurs when the buyer acquires the seller, for example the acquisition by an automobile manufacturer of a parts supplier or an aluminum manufacturer that purchases bauxite mines.”  U.S. Federal Trade Commission, Guide to the Antitrust Laws: “Vertical mergers involve firms in a buyer-seller relationship — for example, a manufacturer merging with a supplier of an input product, or a manufacturer merging with a distributor of its finished products. Vertical mergers can generate significant cost savings and improve coordination of manufacturing or distribution. But some vertical mergers present competitive problems. For instance, a vertical merger can make it difficult for competitors to gain access to an important component product or to an important channel of distribution. This problem occurs when the merged firm gains the ability and incentive to limit its rivals’ access to key inputs or outlets.”

Vertical relationships. U.S. Federal Trade Commission, FTC Guide to the Antitrust Laws:  “The antitrust laws also affect a variety of ‘vertical’ relationships – those involving firms at different levels of the supply chain – such as manufacturer-dealer or supplier-manufacturer.”