Competition Law: Vertical Restraints and Vertical Mergers - Essay Example

Abusive practices by such businesses may have a large impact on cross-border trade. Vertical Restraints and Vertical Mergers are two ways in which corporations may seek to increase their influence in the market. Although Vertical Restraints and Vertical Mergers are not per se anti-competitive or pro-competitive, but in this paper we examine the anti-competitive risks of each. The hypothesis is that since the anti-competitive risks of both are same, so they should be subject to the same principles.

The EC Community Competition Policy is targeted towards three kinds of anti-competitive activity. The laws applicable to each are also different. First, Restrictive Trading agreements between otherwise independent business undertakings which may affect trade between Member States and which distort competition within the common market (Art 81 EC Treaty) Second, Abusive, anti-competitive practices of large undertakings that dominate markets for goods or services which affect trade between Member States.

(Art 82 EC Treaty), and lastly, major mergers of undertakings resulting in positions of market dominance in the Community. (EC Merger Regulation 139/2004, which replaced Regulation 4064/89) In 2004, the laws relating to both restraints and mergers were changed profoundly. The changes have included simplifying the procedures and also to mould the laws as per the requirements of the new globalised world. The competition law of the EC is now shifting from a legal-centric approach to more market-centred economic considerations.

They focus much more on abuses that lead to "likely or actual market foreclosure effects." (Competition law and Policy in the European Union, 2005) The focus has thus shifted to analyse effects than prohibited behaviours. A more substantive test has been framed to tackle issues such as unilateral effects and merger specific efficiencies. This test has been brought closer to the US test as set out in Section 7 of the Clayton Act. The merger review as well as the review of vertical restraints is much more economics-based today.

(Egg, Bay and Galzado, 2004)Common Anti-competitive risks of Vertical Restraints and Vertical Mergers The evidence from economic literature and the concerned case law shows that the anti-competitive risks of vertical restraints and vertical mergers are the same as they create a similar impact on competition. EC has framed separate laws for both as it still takes a viewpoint that looks at the impact on competition, unlike the US competition law, which looks at the impact on consumers. But the EC competition law is moving towards the US Antitrust law.

The EC now accords more importance to the economics of a restraint or merger. The effects of a vertical restraint or a vertical merger on competition and consumers are what make the competition law applicable to cases. The evidence shows that both vertical mergers and vertical restraints restrict, prevent and distort competition through exclusion and collusion. These two anti-competitive behaviours are found to be common in both vertical restraints and vertical mergers. This makes a strong case for both to be subject to the same principles.

Vertical Restraints are basically agreements between producers and distributors that may be used "pro-competitively to promote integration of the market and efficient distribution, or anti-competitively to