The University of Chicago
The Booth School of Business of the University of Chicago
The University of Chicago Law School
How Do Cartels Use Vertical Restraints? Reflections on Bork's The Antitrust Paradox
Author(s): Margaret C. Levenstein and Valerie Y. Suslow
Source: Journal of Law and Economics, Vol. 57, No. S3, The Contributions of Robert Bork to
Antitrust Economics (August 2014), pp. S33-S50
Published by: The University of Chicago Press for The Booth School of Business of the University of
Chicago and The University of Chicago Law School
Stable URL: http://www.jstor.org/stable/10.1086/676683 .
Accessed: 07/02/2015 22:52
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact [email protected].
.
The University of Chicago Press, The University of Chicago, The Booth School of Business of the University of
Chicago, The University of Chicago Law School are collaborating with JSTOR to digitize, preserve and extend
access to Journal of Law and Economics.
http://www.jstor.org
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
How Do Cartels Use Vertical Restraints?
Reflections on Bork’s The Antitrust Paradox
Margaret C. Levenstein University of Michigan
Valerie Y. Suslow University of Michigan
Abstract
In The Antitrust Paradox, Robert Bork discusses vertical restraints and policy
responses to naked and ancillary price fixing. Empirical research finds that vertical restraints are generally welfare enhancing. We examine cartels that used
vertical restraints to support collusion. We find that one-quarter of a sample
of convicted contemporary international cartels used vertical restraints. Some
of these cartels used vertical restraints to control downstream firms who might
otherwise have undermined collusion. In other cases, distributors themselves
had market power and received a share of cartel rents in return for their willingness to exercise that power as part of a cartel. This raises questions for antitrust
policy toward vertical restraints in highly concentrated industries or in those
with a history of cartel activity.
1. Introduction
Robert Bork’s The Antitrust Paradox affirmed the per se prohibition on naked
horizontal price fixing between competing firms: pure price-fixing unambiguously harms consumers. In contrast, Bork (1978) argued that vertical agreements
could not, in and of themselves, harm consumers and should therefore be per se
legal. Horizontal agreements in which price-fixing or output restraints are ancillary are an intermediate case. Bork proposed to treat these under a rule of reason,
where their efficiency benefits could be balanced against any harm to consumers
that might arise when firms have market power. In a concise statement of his
long-held views, Bork wrote, “It is the thesis here that proper doctrine should
hold ancillary price fixing and market division lawful in all cases in which the
parties lack market control, and that all vertical market division and price fixing
should be lawful regardless of the parties’ market size” (Bork 1966, pp. 373, 391).1
Bork’s views on horizontal and vertical restraints have had enormous impact
We thank Greg Werden, Dennis Carlton, and an anonymous referee for very useful comments.
Special thanks go to Erin Wilk, along with Jana Eliason, for research assistance.
1
See Sokol (2014) for further discussion of Bork’s attitude toward vertical restraints.
[ Journal of Law and Economics, vol. 57 (August 2014)]
© 2014 by The University of Chicago. All rights reserved. 0022-2186/2014/5703-0026$10.00
S33
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S34
The Journal of LAW & ECONOMICS
on both scholarly and legal attitudes toward antitrust policy. Courts in the United
States have moved toward Bork’s views. For example, after decades of per se prohibition, U.S. policy on resale price maintenance (RPM) has ultimately aligned
with Bork’s position. In State Oil Co. v. Khan (522 U.S. 3 [1997]), the Supreme
Court held that maximum RPM between a manufacturer and its authorized dealers should be judged under a rule of reason. In Leegin Creative Leather Products,
Inc. v. PSKS, Inc. (551 U.S. 877 [2007]), the Supreme Court held that the rule
of reason also applies to minimum RPM, thus wholly rejecting the per se ban
on RPM that had been in place since Dr. Miles Medical Co. v. John D. Park &
Sons Co. (220 U.S. 373 [1911]). In Leegin, the court did express lingering concern
about potential anticompetitive effects of vertical restraints, especially in cartel
cases, commenting that “[v]ertical price restraints also ‘might be used to organize
cartels at the retailer level.’ . . . Historical examples suggest this possibility is a legitimate concern” (Leegin, 551 U.S. 892–93 [2007]).
In this paper we examine cartels—both historical and contemporary examples—that used vertical restraints to support naked price fixing. This approach
allows us to observe and understand how vertical restraints may undermine competition. This analysis does not cover a random or representative set of vertical
restraints and therefore cannot tell us anything about vertical restraints in general. Instead, it is a window into a particular use of vertical restraints for anticompetitive purposes. It provides insight into how cartels operate and sustain themselves. It is also a cautionary tale for an excessively sanguine approach to vertical
restraints.
We develop a taxonomy of the use of vertical restraints to address two important cartel challenges, cheating and entry. Some cartels use vertical restraints to
control distributors who might otherwise undermine collusion.2 The upstream
cartel may respond to such distributors by implementing RPM, restricting (or
eliminating) supply, or, in the extreme, acquiring the downstream firm (vertical
integration). We also present examples of distributors who themselves had market power and received a share of cartel rents in return for their willingness to
exercise that power as part of a cartel. In some cases these distributors monitored
sales and provided information regarding customer demand. In other cases they
created a barrier to entry to new producers who might compete with the cartel.
Bork advocated a relatively permissive antitrust treatment of horizontal restraints when they were ancillary to the primary purpose of the agreement. In
such cases, they should be treated under a rule of reason. Cooperative activities
among competing firms, such as joint marketing or research and development
(R&D), often benefit consumers. When these activities are the primary purpose
and can lawfully be conducted by a single firm, he argued that they should be
permitted by independent firms who have chosen not to merge. A rule-of-­reason
approach acknowledges these potential efficiencies. Courts could determine
2
We use the term “collusion” throughout the paper to mean explicit collusion. All of the examples that we discuss in this paper are drawn from explicit cartels.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S35
whether the firms have market power, whether output or price restrictions are
ancillary, and whether the agreement creates efficiencies.
We begin by discussing Bork’s position on ancillary restraints. We then turn to
a discussion of vertical restraints, highlighting theoretical innovations since The
Antitrust Paradox. We introduce our taxonomy of cartel use of vertical restraints
in relation to our analysis of a sample of confirmed cartel cases.
2. Naked versus Ancillary Restraints
Bork (1978, pp. 263, 268) argues that the per se rule against horizontal price fixing made cartels less effective and prevented cartels from forming. Bork addressed
and dismissed challenges to the per se rule for what are now known as hard-core
cartels: if the rule misses potential nuances, any costs are far outweighed by the
associated increase in clarity and decrease in enforcement costs (Bork 1978, p.
268).3 However, he argued that certain price and market-division agreements can
be beneficial to consumers where they are ancillary to a productive cooperative
agreement: “The reason we do not make these eliminations of rivalry illegal per
se is that they involve integration of productive activities and therefore have the
capacity to create efficiency” (Bork 1978, p. 264). That is, there is a class of horizontal restraints that should be judged by rule of reason because they have the
potential to create efficiencies. Firms employing such restraints should be given
the opportunity to demonstrate that these efficiencies are the primary intent of
the restriction. Thus, Bork makes the case that the per se rule should be limited,
making it illegal per se for separate firms to agree to fix prices or divide markets
(or to eliminate rivalry generally) only when the restraint is naked—that is, only
when the agreement is not ancillary to cooperative productive activity engaged in
by the agreeing parties. In other cases, where the primary purpose of the agreement might create efficiencies or benefits to consumers, the agreement should be
considered under the rule of reason, analogously to merger law.
Cooperative productive activity can create efficiencies not only in the production of goods or services but also in marketing and distribution. This logic similarly applies to joint R&D, training, hiring, and input purchases. Bork argues that
interfirm agreements on such matters should be judged by the antitrust standards
applicable to the internal growth of firms or by horizontal merger rules, even if
they have an ancillary effect on price. Thus, the law of contract integration, which
governs these interfirm agreements, and merger law, which governs ownership
integration, should be made symmetric. There is no justification for using rule
of reason in one case and not in the other. Horizontal mergers are governed by
rule of reason because they can create efficiencies. Similarly, contract integration
(including price-fixing and market division agreements) is capable of producing
efficiencies. In some cases, contracts are more efficient than integration (Coase
3
For example, one such nuance might be the case in which two firms that have no market power
try to raise prices or limit output. They may conspire to fix prices without success or any economic
impact. The conspiracy itself is per se illegal, even if there are no damages. Under a rule of reason,
cartel failure might constitute a defense.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S36
The Journal of LAW & ECONOMICS
1937). There is a class of interfirm cooperation that society would like to permit.
In most cases, however, when independent firms write contracts that set prices
or divide markets, the agreements are illegal under the per se rule. This creates
a perverse incentive for firms to merge when they might otherwise choose to remain independent.4
The choice to use contracts is evidence of a revealed preference: by opting to
forgo merger, the firms are indicating they believe there are relatively limited
potential efficiencies from merger. Bork (1978, p. 267) describes contracts and
mergers as “economically identical phenomena.” The different behavioral choices
reflect a determination by the parties that they are not identical. Thus, some distinction in the law between contracting and mergers seems reasonable. On the
other hand, to the extent that the incentives created by antitrust law distort observed merger and contracting decisions and reflect minimization of antitrust
risk, these choices may be uninformative about potential efficiencies.
Bork suggests that the per se rule be applied only where there is a restriction on
output, which he considers the defining feature of a cartel. He says, “Nobody supposes that a law firm in New York fixes its fees or controls specialization and client contacts for the purpose of restricting output” (1978, p. 265). The New York
law firm is implicitly setting its own output when it sets its price. What it is not
doing is limiting the output of others or the output that is supplied to consumers
overall. The reason that this price-setting, output-limiting decision on the part of
the law firm is acceptable is not that the law firm does not set output. It does. It is
that there are other law firms that are not party to this agreement. It is the lack of
market power that distinguishes this decision, not its lack of impact on firm output. This implies that the purely logical resolution of this tension is to ban price
fixing only when firms possess market power. The problem, as Bork acknowledges in his defense of the per se rule, is that using a rule of reason to determine
anticompetitive effects of naked price fixing would unduly burden the courts.5
On the other hand, Bork advocates a rule of reason where price fixing is ancillary (for example, a marketing arrangement), believing that the distinction between the two would be straightforward for courts and businesses.6 Cartel prosecutions reveal that ex post this distinction can be unclear. For example, joint
distribution agreements allow firms to share costs and take advantage of economies of scale. They are also a powerful cartel enforcement mechanism. As such,
joint sales organizations were a pervasive organizational feature of cartels for
4
We see such incentives in both the 1890s merger wave (Lamoreaux 1985) and the adoption of
anticartel laws in advance of effective merger regulation in many developing countries. See also
Levenstein and Suslow (2004, p. 50).
5
“The per se rule against naked price-fixing and market-division agreements is thus justified not
only on economic grounds but also because of the rule’s clarity and ease of enforcement” (Bork
1978, p. 269). See Brennan (2000) for a discussion of “rules versus discretion” with application to
horizontal and vertical restraints.
6
Distinguishing between naked and ancillary restraints using the “criteria of the rule of reason:
market power and intent . . . (which are already used in the law of mergers and elsewhere) are by no
means difficult for courts, and they provide the predictability that businessmen and their counsel
desire” (Bork 1978, p. 277).
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S37
many years.7 They are no longer in widespread use because they leave an obvious
evidentiary trail that would call attention to an industry’s anticompetitive activities in today’s legal environment. Under the standard that Bork proposes, this
deterrence to the use of distributors to facilitate collusion would be weakened. An
exclusive agreement between a manufacturer and a distributor to set prices might
make it appear that price fixing was ancillary when the opposite is true.8
There is an alternative policy response. Rather than create a large class of horizontal price-fixing agreements that are considered under the rule of reason,
one could maintain the per se rule and carve out explicit exceptions. One way in
which Bork’s ideas have been applied since the publication of The Antitrust Par­
adox is in giving differential antitrust treatment to joint ventures.9 This is more
limited than Bork’s recommendation, as policy maintains a clear distinction between contractual horizontal arrangements and joint ventures, where the former
is governed by the per se rule and the latter by the rule of reason. The Antitrust
Guidelines for Collaborations among Competitors issued by the U.S. Department
of Justice and the Federal Trade Commission recognize that “[m]ost [research
7
Cartel use of joint sales agents is described in Röller and Steen (2006) for cement, Hughes and
Barbezat (1996) for steel, and Levenstein (1995) for bromine and bleach. In a study of interwar international cartels, Suslow (2005) finds that approximately 30 percent used a common sales agency.
A series of U.S. court decisions dating back to at least 1918 have enjoined firms from using joint
selling agencies where the firms had a large market share or it was held that the arrangement would
limit competition (Donavan and McAllister 1933, pp. 925–26). Virginia Excelsior Mills v. Federal
Trade Commission, 256 F.2d 538 (1958), provides a useful illustration of how courts have distinguished between lawful and unlawful uses of joint selling agencies. Small producers of excelsior, a
shredded wood product, had organized a new corporation, the Virginia Excelsior Mills, Inc. (Mills).
Each of the producers then entered into an agreement with Mills whereby Mills was appointed the
exclusive sales agent of the producers to sell excelsior at the prices Mills obtained. The appellate
court ruled that the intent of the joint selling agency was to fix prices and that it was therefore a
violation of section 1 of the Sherman Act. The court noted that utilizing a joint sales agency is not
necessarily unlawful but was in this case because it was a vehicle for price fixing.
8
For example, in 1908, the Dow Chemical Company’s attorneys were asked to review a contract
between Dow and the two firms that had been the exclusive distributors for the bromine pool for at
least the previous 2 decades. The attorneys offered the opinion that the new contracts prohibiting
the distributors from purchasing from any other producers were not in violation of the law, “But in
stating this to you, we wish you to bear in mind the present trend of public opinion and judicial decisions which are against all acts which even seemingly tend to combination, monopoly or restraint
of trade. We have added . . . a declaration that the contract is made in order to promote your trade
and increase your business” (Squires, Sanders, & Dempsey, Counsellors at Law, to Herbert Dow,
November 5, 1908, manuscript file no. 080017, Post Street Archives, Midland, Mich.). This contract
highlights the challenge of considering vertical agreements out of context. The agreements between
Dow and its distributors could have been completely procompetitive in a different industry with
a different history and organization. In fact, the agreement was signed in order to exclude fringe
firms because they threatened to disrupt Dow’s written agreement with the German bromine cartel,
the Deutsche Bromkonvention, to set prices and divide global markets. See Levenstein (1998, pp.
80–82).
9
A joint venture itself is judged under the rule of reason unless the venture is shown to be an
outright sham. See, for example, Texaco Inc. v. Dagher, 547 U.S. 1, 3 (2006), which held that “lawful, economically integrated joint venture[s]” are not per se illegal under section 1 of the Sherman
Act, and American Needle, Inc. v. National Football League, 560 U.S. 183 (2010), in which the Court
stated that “[W]e have repeatedly found instances in which members of a legally single entity violated § 1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity.”
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S38
The Journal of LAW & ECONOMICS
and development collaborations] are procompetitive, and they typically are analyzed under the rule of reason” (U.S. Department of Justice and Federal Trade
Commission 2000, p. 14). Despite the procompetitive benefits, the Guidelines
also acknowledge the potential anticompetitive concerns arising from R&D collaborations (U.S. Department of Justice and Federal Trade Commission 2000).10
The Guidelines note that while R&D collaborations “may facilitate tacit collusion
on R&D efforts, achieving, monitoring, and punishing departures from collusion
is sometimes difficult in the R&D context,” but, at a certain threshold, the Guidelines stress that “labeling an arrangement a ‘joint venture’ will not protect what
is merely a device to raise price or restrict output; the nature of the conduct, not
its designation, is determinative” (U.S. Department of Justice and Federal Trade
Commission 2000, p. 9).
Legislation has also been used to delineate and exempt explicit classes of economic activity where there are large potential returns to interfirm collaboration. The National Cooperative Research Act of 1984 codified a rule-of-reason
standard for R&D joint ventures.11 Under the statute, joint ventures “shall not
be deemed illegal per se; such conduct shall be judged on the basis of its reasonableness, taking into account all relevant factors affecting competition” (15
U.S.C. sec. 4302). Export trading companies are another example of permissible
cooperative arrangements between firms. They are given an explicit antitrust exemption in part because of the belief that the joint activity is important and has
as its primary purpose efficiency-enhancing activities in marketing and distribution.12 Recognition that these joint cooperative activities might be discouraged by
fear of domestic antitrust enforcement motivates their explicit exemption. The
overall per se prohibition on price fixing remains, with a “carve-out” allowing
society to reap expected efficiency benefits. Similarly, exemptions are provided
to sports leagues, agricultural cooperatives, and the like, where there are other
welfare considerations.13 The proliferation of such exceptions reflects a downside:
exceptions encourage rent-seeking behavior by sectors seeking special treatment.
Exemptions in specific circumstances in which the expected welfare benefits are
demonstrably high is an alternative to broadening the rule of reason more generally. The challenge is drawing a line in a way that does not unduly burden the
courts or undermine competition.
10
The Guidelines state that joint research and development agreements “can create or increase
market power or facilitate its exercise by limiting independent decision making or by combining in
the collaboration, or in certain participants, control over competitively significant assets or all or a
portion of participants’ individual competitive R&D efforts.”
11
The National Cooperative Research Act was further amended in the National Cooperative Research and Production Act of 1993. These were codified together at 15 U.S.C. secs. 4301–6.
12
Any harm created by the antitrust exemption provided to export companies is borne predominantly by consumers outside the United States. See Levenstein and Suslow (2005) for discussion
of the motivation and debate around the U.S. decision to exempt cooperative activity by exporters
from antitrust laws. See also Levenstein and Suslow (2007).
13
In some cases, these welfare benefits accrue to particular special interests and may not even be
Pareto improving. In other cases, the benefits accrue widely to consumers or are large enough to be
Pareto improving, whether or not consumers directly benefit.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S39
3. Theoretical Innovations since The Antitrust Paradox
Economic theory has made important advances since the publication of The
Antitrust Paradox, when Robert Bork (1978, p. 277) could confidently write, “The
entire attempt of this book is to demonstrate that correct antitrust rules require
only basic economics and that they are capable of easy and precise application
by courts.” In particular, basic economics demonstrates that vertical restraints
cannot cause harm. Since such restraints cannot facilitate collusion without preexisting market power, Bork argued that they should be permitted. Advances in
economic theory suggest that when simple but critical assumptions of basic economics do not hold, some of the clear and definitive answers that Bork had in
mind no longer apply. Standard economic models now explicitly acknowledge
that firm behavior is interdependent and reflects the information and expectations that individual firms have. When these assumptions are built into a theoretical model, the equilibrium outcome may differ from the simple case. In particular, economists have shown that vertical restraints with negative effects on
consumer welfare can be the result of rational equilibrium behavior by individual
firms: “As a result, most economists now believe it is impossible to predict the
competitive and welfare effects of vertical restraints out of the context in which
they are applied” (Verouden 2008, p. 1816).
For example, Rey and Stiglitz (1995) introduce a model in which competing
producers use distributors with exclusive territories to soften competition.14 Similarly, Rey and Vergé (2010) show that producers can use RPM to soften competition without preexisting market power. Bernheim and Whinston (1985, 1986)
develop models in which all producers in an industry independently choose to
sign an exclusive contract with the same distributor. Those contracts modify
the incentives of each upstream producer so that each one, without any explicit
agreement, chooses to produce the joint profit-maximizing output, with attendant increases in price and losses in consumer surplus.
For economics to provide the basis for clear antitrust policy, there has to be a
one-to-one mapping from observables—things a court can observe—to welfare
outcomes. The theoretical ambiguities regarding the welfare implications of vertical restraints do not provide a foundation for simple rules (Cooper et al. 2005,
pp. 642–48). While we would like to apply simple economic models to provide
simple rules, we must use the correct economic model for the situation at hand.
It may be that the appropriate model is game theoretic or builds in behavioral
assumptions, and in that case the predictions of the model may differ from the
basic model. This was exactly the fear expressed in the Topco decision (United
States v. Topco Associates, Inc., 405 U.S. 596 [1972]) and dismissed by Bork, when
the Court decided to retain the per se ban on exclusive dealing in order to avoid
losing judges in the “wilds of economic theory” (Bork 1978, p. 276).
14
See Lafontaine and Slade (2007, pp. 664–65) for a discussion of this model in the context of vertical integration and vertical restraints more generally. See Rey and Tirole (1986) for a discussion of
the implications of vertical restraints in a world of uncertainty.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S40
The Journal of LAW & ECONOMICS
While there has been significant advance in modeling vertical restraints, one
limitation is that they remain understandably partial equilibrium models. Most
of these models examine the impact of one firm’s choice to integrate forward or
use a vertical restraint. It is likely that other firms in the industry will respond, so
the contemplated equilibrium choice for one firm may not be an industry equilibrium. For example, Bernheim and Whinston (1985, 1986) show that a firm’s best
response when other firms have an exclusive distribution agreement may differ
from its best response when other firms are not using such a restraint. Thus, it is
important to analyze the impact of vertical restraints (and vertical integration) in
the context of industry equilibrium.
4. How Cartels Use Vertical Restraints
Despite these theoretical ambiguities, the empirical literature examining how
firms actually use vertical restraints supports Bork’s analysis of the benefits of
vertical restraints. Lafontaine and Slade (2008, p. 408) provide a meta-analysis of
the use of vertical restraints and conclude that “in all but three [of 12 studies surveyed], privately imposed vertical restraints benefit consumers or at least do not
harm them. The three exceptions are studies that show that particular restraints
are associated with higher prices . . . If we ignore price effects, the results . . . imply that voluntarily adopted restraints are associated with lower costs, greater
consumption, higher stock returns, and better chances of firm survival. . . . In
general, the empirical evidence leads one to conclude that consumer well-being
tends to be congruent with manufacturer profits, at least with respect to the voluntary adoption of vertical restraints.” Similarly, Cooper et al. (2005, p. 648) review studies of vertical integration and vertical restraints and conclude that “there
is a paucity of support for the proposition that vertical restraints/vertical integration are likely to harm consumers.” At least in a policy environment where there
were restrictions on the use of vertical restraints, the empirical literature strongly
suggests that in most instances vertical restraints either did not harm consumers
or were balanced by efficiency-enhancing effects that benefited them.
Most of the empirical evidence is derived from industries in which, as far as
one can tell, firms adopt the business practice unilaterally. In a study of RPM
litigation, Ippolito (1991) specifically looks for claims that these restraints were
being used to facilitate collusion. She finds that between 10 (private-sector suits)
and 13 (public-sector suits) percent of cases included allegations of dealer or supplier collusion (Ippolito 1991, p. 281).
Here we examine cases in which a broad range of vertical restraints were used
to facilitate explicit collusion. These vertical restraints help cartels address two
key challenges, cheating and entry. Stigler (1964) argues that cheating frequently
undermines cartels. In previous work, we have shown that entry is at least as
challenging as cheating (Levenstein and Suslow 2011). The theoretical literature
has shown that if firms can perfectly observe cheating, they will not cheat, and
the joint profit-maximizing solution can be maintained (assuming that firms
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S41
Table 1
Interaction of Distributors and Cartels
Cartel Challenge
Distributor Impact
Facilitate
Undermine
Cheating
Monitor cartel members
Provide information to cartel about
customers
Directly control sales (via joint sales
agents)
Sell below announced price
Provide storage and arbitrage
Entry
Foreclose where they have information
about customers or offer multiple
products
Integrate upstream
are sufficiently patient). Information is often not perfect, so cartels invest in improving its quality. It is much more efficient for a cartel to make cheating visible
than it is to punish ex post. In order to do this, cartels monitor one another and
share information with one another. They sometimes use third parties, such as
trade associations and auditors, for monitoring (Levenstein and Suslow 2011, p.
459). In some industries it is distributors who have information that sheds light
on whether cheating has occurred and are thus in a position to help prevent it.
Cartels may also use vertical restraints to address the challenge of entry by foreclosing both access to inputs (technology or specialized resources and raw materials) and access to markets. Distributors are in a unique position relative to
both challenges that cartels face: they can be cheaters and they can be entrants.
They are also in a position to prevent both cheating and entry. Table 1 presents a
framework for categorizing the different roles that distributors can play vis-à-vis
a cartel.
Table 1 lists both the ways in which distributors assist cartels, taking actions
to prevent cheating or entry and the ways in which distributors undermine cartels. Distributors can resell at a price below the agreed-upon cartel price. In some
instances, distributors will store output sold at low prices and release it on the
market when the cartel attempts to raise prices. From the perspective of the cartel members, these sales are observationally equivalent to cheating and make the
detection of cheating by cartel members more difficult. Although not as common, distributors can enter directly into competition with the cartel by integrating backward into production. When distributors engage in disruptive activities
to undermine cartels, cartels may employ classic vertical restraints. They do so
in three stages, exercising increasing control of downstream firms. Cartels first
attempt to restrict the pricing of downstream firms, using contracts such as RPM.
They may add other restrictions on sales, such as exclusive territories or customers. If that is not successful, they may restrict supply or refuse to deal. Finally, in
the most extreme cases, they acquire the downstream firm.
An examination of a sample of 81 international cartels convicted of engaging
in price fixing between 1990 and 2007 shows that there is evidence that 20 had
distributor participation or used vertical restraints in some form to support the
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S42
The Journal of LAW & ECONOMICS
cartel.15 The cartels that used vertical restraints span the industrial spectrum, including intermediate goods in chemicals, carbon products, paper, and plastics
and consumer items such as beer and haberdashery goods. The average four-firm
concentration ratio of these cartelized industries was 67 percent, somewhat less
than the average concentration for the full sample (75 percent).16 Most of the evidence of this behavior comes from the detailed descriptions of cartel activity that
the European Commission (EC) published. Neither the U.S. Department of Justice nor the EC prohibits vertical restraints generally, so these behaviors were reported in passing because they were part of the organization of the workings of
the cartel. Other than establishing cartel membership on the part of distributors,
these kinds of details are not necessary to demonstrate that price fixing occurred.
Thus, this estimate that one-quarter of the cartels in our sample used vertical restraints is likely an underestimate of the frequency with which cartels generally
use vertical restraints to facilitate collusion. We turn now to a closer examination
of cartel strategies, mapping from individual cases into the schematic in Table 1.
The choline chloride cartel understood that competition among distributors
could undermine its ability to raise price (see the undermine-cheating combination in Table 1).17 It made controlling the price charged by distributors an
explicit objective of the cartel: “To ensure the effectiveness of the market allocation and price agreements, it was important for the producers to control the
behaviour of distributors and converters of choline chloride in the world market.
It was therefore agreed that each producer was responsible in his home market
for controlling converters and distributors, in particular through ‘proper pricing’ of choline chloride to them” (Case COMP/E-2/37.533—Choline Chloride,
Comm’n Decision [December 9, 2004], para. 69; hereinafter, Comm’n Decision
2004, Choline Chloride). The lack of control of downstream pricing could undermine the joint market power that the cartel was attempting to establish. While
this RPM-type restriction did not create market power where there was none upstream, it was intended to discourage or prevent distributors from undercutting
the cartel price. When it proved impossible to maintain “manufacturers’ prices,”
15
See Levenstein and Suslow (2011) for more details regarding this sample of international cartels. That paper focuses on cartel duration and does not examine cartel use of vertical restraints.
16
The four-firm concentration ratio is a lower bound; we measure the minimum four-firm concentration ratio using publicly available information. We have this measure for 15 of the 20 cartels
known to use vertical restraints. For the larger sample of 81 international cartels, the estimate of
concentration is based on 57 cartelized industries for which we were able to obtain concentration
measures (Levenstein and Suslow 2011, p. 471, table 3).
17
The European Commission’s decision on the choline chloride cartel describes the producer-­
distributor relationship: “Choline chloride is a member of the B-complex group of water-soluble
vitamins (vitamin B4). Choline chloride is mainly used in the animal feed industry as a traditional
feed additive, especially for poultry and swine, to increase growth, reduce mortality rates, increase
feed efficiency, increase egg production and improve meat quality. Choline chloride is marketed in
either an aqueous solution of 70% choline chloride or is sprayed on a dry cereal (or silica) carrier
for a choline chloride potency of 50% to 60%. Some producers produce both varieties but are particularly strong in one variety while other producers have a tolling agreement whereby the tolling
company converts for example liquid choline chloride into choline chloride fixed on a carrier, which
it then returns to the producer of the liquid choline chloride” (Case COMP/E-2/37.533—Choline
Chloride, Comm’n Decision [December 9, 2004], paras. 5–6).
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S43
the cartel turned to refusals to deal with suppliers. Akzo Nobel committed to
“take necessary steps” to control the Dutch distributor Denkavit (Comm’n Decision 2004, Choline Chloride, para. 112), and BASF ended its relationship with
an unnamed U.S. distributor who was not cooperating with the cartel (Comm’n
Decision 2004, Choline Chloride, para. 138).
Some choline chloride distributors were also converters of liquid choline chloride, processing it further into a dry form. The converters depended on producers
for the supply of the liquid input. Some manufacturers were integrated forward
into this stage of the conversion of the output, but other, vertically separated
manufacturers, relied on converters for processing. Some converters sold the dry
output back to manufacturers; others sold directly to customers. Many did both.
The existence of these converters, who were not party to the choline chloride cartel, created a competitive fringe that the cartel needed to control. Cartel members
responded by requiring exclusive contracts in which the converter sold all dry
output back to the upstream producer. Converters who refused might in turn
face a refusal to supply with liquid choline chloride.18
Continuing with examples of the undermine-cheating combination in Table 1,
our sample includes other cartels that used vertical restraints to manage distributors who were not inclined to cooperate. In the thermal fax paper cartel, producers attempted to impose something like RPM on the trading houses that distributed their product: the success of their efforts was uneven. The product was at
the end of its life cycle. Trading houses were diversified, not dependent on manufacturers of that particular product, and resisted cartel price increases. Some followed the price increase originally, but most eventually stopped complying because they lost customers when they raised prices.19 Trading houses claimed to
the EC that manufacturers refused to supply those that did not follow the price
increase (Acharya 1999). Manufacturers attempted to monitor trading houses’
prices, adding to the tension (see United States v. Nippon Paper Indus. Co., No.
95-10388 [D. Mass. filed September 3, 1996], para. 9; see also United States v.
Nippon Paper Indus. Co., 62 F. Supp.2d 173, 181, 181 n.13).
The electrical and mechanical carbon cartel provides another example of a cartel that refused to supply downstream distributors to enforce their cooperation
with the cartel: “A local meeting in Germany on 7 May 1992 records a discussion among cartel members on how best to act against EKL, a competitive East-­
German cutter that had entered aggressively into the West-German market after
unification. Two strategies were agreed: First, none of the members of the car18
“According to the contemporaneous meeting documents supplied by Bioproducts, it was considered necessary, in order to make the general agreement among producers work, to prevent any
disruptive sales from converters and distributors. In particular, this control over converters was to
be obtained by making sure that they purchased their choline chloride from cartel members, at the
right conditions. Bioproducts’ notes read: ‘Have to control converters raw material. Will have profit
from price increase.’” (Comm’n Decision 2004, Choline Chloride, para. 81).
19
“Implementation, however, was not easy. . . . To be sure, some trading companies strongly resisted any price increases, arguing with the manufacturer’s representatives, perhaps even refusing to
implement it, or cutting special deals with customers to mitigate its effects” (United States v. Nippon
Paper Industries Co., Ltd., 62 F. Supp.2d 173, 181 [D. Mass 1999]; see also pp. 181 n.13 and 182).
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S44
The Journal of LAW & ECONOMICS
tel would supply any graphite to EKL. Secondly, EKL would be denied any market share by systematically undercutting it with all customers, so that it would
not be able to sell anywhere. EKL was taken over by SGL [a cartel member] in
1997” (Case C.38.359—Electrical and Mechanical Carbon and Graphite Products, Comm’n Decision [December 3, 2003], para. 157). This last action illustrates
an ultimate vertical restraint that was seen in cases where there were distributors
that had some production capabilities or the possibility of upstream integration,
namely, acquisition of the recalcitrant firm.20 Vertical integration can create efficiencies, but in this case it was undertaken to suppress competition. It would not
be obvious to an outside observer that these attempts to assert vertical control
were connected to upstream collusion. Each of these activities could be justified,
absent upstream market power, as efficiency enhancing.
Each of these cartels attempted to use vertical restraints to control distributors in order to extend upstream market power downstream. In other cases,
market power is downstream. Distributors actively cooperate with the cartel
and receive cartel rents, providing services to the cartel that downstream firms
are uniquely positioned to perform, including monitoring and enforcement of
market and customer division agreements (see the facilitate-cheating combination in Table 1).21 In many markets distributors have information about demand,
customer preferences, and producer capabilities as well as their own established
brand reputation. Distributors can use this information to prevent entry by cartel
outsiders. Historically, joint distributors and pools served this function, but such
arrangements are uncommon in an environment of heightened antitrust enforcement.22 Distributors continue to play this role using less formal and more covert
relationships. For example, the sorbate distributors monitored the market and reported back to cartel members: “Hoechst and the Japanese producers monitored
target price adherence through the data regarding competitor pricing which they
used to receive through their dealers . . . [The cartel’s] reporting and monitoring
system . . . ensured the effective implementation of the targets set” (Case COMP/
E-1/37.370—Sorbates, Comm’n Decision [October 1, 2003], paras. 113, 325).
Similarly, U.S. distributors participated in the Mexican tampico fiber cartel. The
agreement between the producers and distributors set retail prices. The U.S. Department of Justice brought civil cases against the distributors involved in the cartel and criminal charges against the producers. According to the complaints, the
20
See the European Commission cement cartel decision, indicating that one cartel member
agreed “to purchase BPE companies or holdings in BPE companies so as to put the coast under lock
and key” (Cases I V/ 33. 126 and 33. 322—Cement, Comm’n Decision [November 30, 1994], p. 56).
21
See, for example, the European Commission copper plumbing tubes decision referring to “national cartels also including distributors” and the Commission’s decision on specialty graphite, referring to the fact that “local distributors of [cartel members] divided the Swedish market in equal
shares” (Case COMP/E-1/38.069—Copper Plumbing Tubes, Comm’n Decision [September 3,
2004], para. 635; and Case COMP/E-2/37.667—Specialty Graphite, Comm’n Decision [December
17, 2002], para. 285). See Jullien and Rey (2007) for a theoretical treatment of the use of resale price
maintenance to monitor adherence to collusion.
22
See Levenstein (1995) for discussion of the role of distributors in running the bromine and
chloroform cartels in the late 19th and early 20th centuries.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S45
distributors were aware of, or at least complied with, the price-fixing scheme after
becoming aware of the conspiracy (United States v. Brush Fibers, Civil Action No.
CV96-5945 [complaint September 26, 1996]; United States v. A&L Mayer Asso­
ciates, Civil Action No. 96-CV-4044 [complaint May 30, 1996]; United States v.
Ixtlera, Civil Action No. CV96-6515 [complaint August 29, 1996]). As described
by Joel I. Klein, the acting assistant attorney general in charge of the Antitrust
Division of the Department of Justice, “[T]his is a textbook example of a cartel among producers enhanced and strengthened by a resale price agreement, all
leading to higher prices to consumers” (U.S. Department of Justice 1996). The
competitive impact statement notes, “As a condition of becoming and remaining
a United States distributor of tampico, one of these distributors agreed by written
contract with one of the defendants to sell at the prices listed on the price sheet”
(United States v. A&L Mayer Associates, No. 96-CV-4044 [E.D. Pa. filed May 30,
1996], competitive impact statement, p. 4). This had the effect of “monitoring and
enforcing the horizontal price-fixing and sales volume allocation agreements between the defendants and co-conspirator” (United States v. A&L Mayer Associ­
ates, competitive impact statement, p. 4).
Distributors may have specialized information that restricts access to distribution channels from new or noncartel producers (the facilitate-entry combination
in Table 1). Brand reputation may be associated with a distributor, giving it an
advantage relative to entrants who would like to sell to customers. This brand
reputation may be based on a critical feature of the product, as was the case in
the chloroform trust in the early 20th century. Chloroform was used to sedate
patients during surgery, but impure chloroform could prove deadly. This made
it virtually impossible for new entrants to compete directly. The Dow Chemical Company developed a new process for producing chloroform that had large
economies of scale. Dow attempted for nearly a decade to enter the chloroform
market but was limited in its ability to take advantage of its new technology because the incumbent distributor tightly controlled sales. Eventually, Dow was
able to produce, but only when it agreed to sell through the chloroform trust.23
A more recent example of cartel foreclosure is the late 20th-century needle
cartel. The cartel consisted of three firms: a distributor (Coats), a vertically integrated manufacturer (Prym), and a manufacturer (Entaco). Coats and Prym es23
The chloroform trust was made up of three firms, Roessler and Hasslacher, Charles Pfizer, and
the Albany Chemical Company (letter from Herbert Dow to George Collings, September 2, 1907,
file no. 070028, Post Street Archives, Midland, Mich.). The three firms were partners in the trust,
the Chlorine Products Company (letter from Hasslacher to H. E. Hackenberg, May 29, 1909, file no.
090018, Post Street Archives, Midland, Mich.). Dow began producing and trying to sell chloroform
in 1903. It attempted for several years to sell through established integrated pharmaceutical firms
but had little success. Finally, in 1909 after persistent sales efforts with every potential customer
and distributor in the United States and Canada, the head of the trust threatened Dow, “[W]e will
fight until ‘the survival of the fittest’” (April 24, 1909, file no. 090018, Post Street Archives, Midland,
Mich.). That summer, Dow negotiated to sell its output exclusively through the Chlorine Products
Company (letter from Dow to Hackenberg and Collings, September, 10, 2009, file no. 090023, Post
Street Archives, Midland, Mich.). See Levenstein (1998, pp. 82–85) for further discussion of the role
of distributors in the pre–World War I chloroform cartel.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S46
The Journal of LAW & ECONOMICS
sentially forced Entaco to participate in market division agreements and to refrain from downstream selling. This was possible because Coats controlled access
to customers: “Entaco would point out that it is difficult for a new market entrant to establish itself in the market for needles as the distribution channels are
under the effective control of Coats and Prym. By the time of the acquisition of
the packaging business in 1994 it was clear that the only way that Entaco could
survive in the market was to join in the long standing partnership arrangements
between Prym and Coats” (Case F-1/38.338—PO/Needles, Comm’n Decision
[October 26, 2004], para. 61).24 In this case, as in many markets, established distributors have lower-cost access to customers because of brand recognition or
long-s­tanding relationships. This can give them a key role in cartels as they prevent entry or the expansion of a fringe.
Antitrust authorities would not have been able to identify the anticompetitive
behavior from the observables in the needle cartel. The manufacturer and distributor agreed that the distributor would be the exclusive representative of the manufacturer; the manufacturer benefited from this agreement because the distributor had long-standing market knowledge and brand recognition. The distributor
also sold output from another manufacturer (Prym) and supplied that vertically
integrated firm with branded output for sale in foreign markets. That is, Coats
and Prym distributed one another’s products.25 There was an agreement between
Coats and Entaco, but there was no agreement between Prym and Entaco, in part
because Coats intervened to prevent such an agreement. Each of these agreements has quite plausible efficiency benefits, and each eliminated potential competition.
Coats and Prym also had exclusive-territory agreements. They agreed to transfer output between themselves in order to supply foreign or international customers, rather than establish real competition in foreign markets. Many European cartels, in attempts to avoid the increased competition associated with
market integration, have made private agreements to establish exclusive territories that reinforce national divisions and undermine European integration.26
Exclusive territories can benefit consumers by allowing firms to capture positive
externalities to activities, such as marketing, that spill over from one territory
to another. Exclusive territories create an incentive for firms to engage in these
welfare-­enhancing activities. But these positive externalities arise only when the
24
Entaco received amnesty for its participation after reporting it to the European Commission
(Case F-1/38.338—PO/Needles, Comm’n Decision [October 26, 2004], paras. 336–39).
25
Many cartels use purchases and sales among member firms to implement market division and
quota agreements. While such sales have plausible efficiency benefits in reducing transport costs or
production costs where there are increasing marginal costs, they should raise suspicions when regularly observed in a highly concentrated industry. For detailed examples, see Levenstein and Suslow
(2011, p. 476).
26
The postbellum United States faced a similar challenge to post–World War II Europe. Integration in the United States was perhaps easier because of a uniform language, monetary system, and
constitutional prohibition on internal tariffs. Economic integration still required an active judicial
process of elimination of state barriers to interstate competition. See McCurdy (1978) for a discussion of Supreme Court rulings that overturned state barriers to trade in the United States.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S47
exclusive territories are part of a well-integrated market. If markets are not integrated, private agreements providing exclusive territories decrease competition
without the concomitant benefit to consumers.
The per se ban on horizontal price fixing prohibits distributors from actively
and explicitly enforcing horizontal market agreements. This creates challenges
for cartels that make them less effective even when they are not discovered. Otherwise, legal vertical restraints can be used to increase the effectiveness of collusion by establishing a mechanism for monitoring and creating entry barriers.
While the per se ban on vertical restraints was misguided, vertical restraints can
be used to exercise market power in a way that is not obvious to authorities. A
healthy skepticism regarding the use of vertical restraints will make horizontal
price fixing—which firms take care to hide—harder to implement and sustain.
On the basis of our observations of convicted cartels that we know used vertical
restraints, skepticism is particularly advisable in highly concentrated industries.
The cartelized industries that we know used vertical restraints had somewhat
lower average concentration than cartelized industries overall. This suggests the
possibility that vertical restraints reduce the lower bound of concentration necessary to sustain a cartel. Further research might provide insight into the relationship among concentration, cartel stability, and vertical restraints.27
Bork argued that horizontal agreements should be unlawful if their primary
purpose is to restrict output or if the firms have enough market power that a
merger between them would not be permitted (Bork 1978, p. 279). On the other
hand, he believed that “all vertical restraints are beneficial to consumers . . . and
should for that reason be completely lawful” (Bork 1978, p. 297). The cartels we
describe here would clearly be illegal under the standard that Bork advocated. At
issue is whether one should question an observed vertical restraint in a highly
concentrated industry or in one known to have had collusive agreements in the
past even if explicit collusion cannot be observed. Our observation of the relatively frequent use of these vertical restraints by cartels that actively hid their horizontal restraints suggests that this is a concern for antitrust policy.
In practice, policy makers might follow the structured rule of reason proposed
by Varney (2009). She outlines conditions under which RPM is anticompetitive.
First, where RPM is pervasive and market structure is concentrated, RPM may
plausibly be used for monitoring to support manufacturer collusion. Second,
where RPM is pervasive and imposed coercively by retailers on producers and
27
Despite consistent theoretical predictions of a relationship between concentration and cartel
stability and success, previous research has been unable to confirm this empirically (Levenstein and
Suslow 2006, pp. 58–61). This may reflect the role of trade associations in facilitating cartels with
a large number of firms (Levenstein and Suslow 2006, p. 58). It may be that other organizational
features, including the use of vertical restraints, also mitigate the challenges of collusion in less concentrated industries. This may explain the weak empirical relationship between concentration and
cartel success. This is akin to an omitted-variables problem but is particularly challenging because
the use of vertical restraints, industry associations, and other cartel organizational features is endogenous. Another complicating factor in finding a relationship between concentration and cartel success is that there is not sufficient variation in observed concentration. The vast majority of observed
cartels are in highly concentrated industries.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S48
The Journal of LAW & ECONOMICS
manufacturers do not have a cost-effective alternative way to reach consumers,
RPM could support retailer collusion. Varney and others presume that manufacturers would have to be coerced into cooperating with colluding retailers, as retailer collusion restricts output. In the examples provided above, where manufacturers were themselves attempting to collude, there were rents to be shared from
cooperation. While Varney frames her argument in terms of the 2007 Leegin decision on the legality of RPM, explicit retailer collusion has a long history. The
Dow Chemical Company suffered from distributors’ collusion in its attempts to
enter multiple chemical and pharmaceutical markets before World War I.28 Although Dow introduced innovative, low-cost production technologies, “retailer
collusion could not be thwarted” (Varney 2009, p. 25).
5. Conclusion
The number of cartels that have been discovered since the revision of the U.S.
Department of Justice’s amnesty policy in the early 1990s suggests that explicit
collusion is more common than economists had presumed. Close examination
of these contemporary cartels reveals a striking feature: a quarter of the international cartels that we have studied used vertical restraints as part of their collusive
strategy. This raises the possibility that there are industries in which vertical restraints might have anticompetitive effects.
Empirical studies of vertical restraints find that they are generally procompetitive, but these studies do not examine the relatively informal and often secret
restraints employed by cartels. In this paper, we start with vertical agreements
that were part of an anticompetitive conspiracy. This is not a random sample of
vertical arrangements, but it does shed light on behaviors that firms hide and that
therefore are not captured in much of the received empirical work on vertical
restraints. Cartels restrain distributors who might otherwise create competition
by setting the prices that distributors must charge, limiting supply, and acquiring
downstream firms. Distributors cooperate with or participate in cartels by monitoring competition and limiting access to customers.
Since Bork, antitrust law has presumed that vertical restraints are innocuous.
Thus, vertical restraints, even in highly concentrated industries, do not generally
draw the attention of antitrust authorities. While the modal uses of vertical restraints are undoubtedly efficiency enhancing, limited antitrust scrutiny allows
cartels to use vertical restraints in ways that harm consumers.
28
For example, the Midland Chemical Company, the predecessor to the Dow Chemical Company, first tried to enter the bromine market in 1892. Two distributors controlled the sale of bromine products throughout the United States and had an understanding with European producers
that no bromine would be exported to Europe. The distributors also had an agreement with the bromine pool to purchase all output of U.S. producers. As a result, Dow was forced to restrict its output
and sell only through the bromine pool. Dow finally succeeded in eliminating most restrictions on
its domestic sale of bromine in 1908. For descriptions of Dow’s attempts to enter the bleach and
chloroform markets, see Levenstein (1995, 1998).
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
Vertical Restraints
S49
References
Acharya, Madhavi. 1999. Toronto Company Files Mitsubishi Suit; Seeks $40 Million,
Class-Action Status Being Sought. Toronto Star, February 17, p. D9.
Bernheim, Douglas, and Michael Whinston. 1985. Common Marketing Agency as a Device for Facilitating Collusion. RAND Journal of Economics 16:269–81.
———. 1986. Common Agency. Econometrica 54:923–42.
Bork, Robert H. 1966. Price Fixing and Market Division. Part II. Yale Law Journal 75:377–
476.
———. 1978. The Antitrust Paradox: A Policy at War with Itself. New York: Basic Books.
Brennan, Timothy J. 2000. Vertical Excuses for Horizontal Practices: Should There Be a
Per Se Antitrust Rule? Antitrust Bulletin 45:467–90.
Coase, R. H. 1937. The Nature of the Firm. Economica, n.s., 4:386–405.
Cooper, James C., Luke M. Froeb, Dan O’Brien, and Michael G. Vita. 2005. Vertical Antitrust Policy as a Problem of Inference. International Journal of Industrial Organization
23:639–64.
Donavan, William J., and Beck P. McAllister. 1933. Consent Decrees in the Enforcement
of Federal Anti-trust laws. Harvard Law Review 46:885–932.
Hughes, James W., and Daniel B. Barbezat. 1996. Basing-Point Pricing and the Stahl­
werksverband: An Examination of the “New Competitive School.” Journal of Economic
History 56:215–22.
Ippolito, Pauline M. 1991. Resale Price Maintenance: Empirical Evidence from Litigation.
Journal of Law and Economics 34:263–94.
Jullien, Bruno, and Patrick Rey. 2007. Resale Price Maintenance and Collusion. RAND
Journal of Economics 38:983–1001.
Lafontaine, Francine, and Margaret Slade. 2007. Vertical Integration and Firm Boundaries: The Evidence. Journal of Economic Literature 45:629–85.
———. 2008. Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public
Policy. Pp. 391–414 in Handbook of Antitrust Economics, edited by Paolo Buccirossi.
Cambridge, Mass.: MIT Press.
Lamoreaux, Naomi R. 1985. The Great Merger Movement in American Business, 1895–
1904. New York: Cambridge University Press.
Levenstein, Margaret C. 1995. Mass Production Conquers the Pool: Firm Organization
and the Nature of Competition in the Nineteenth Century. Journal of Economic History
55:575–611.
———. 1998. Accounting for Growth: Information Systems and the Creation of the Large
Corporation. Redwood City, Calif.: Stanford University Press.
Levenstein, Margaret C., and Valerie Y. Suslow. 2004. Contemporary International Cartels
and Developing Countries: Economic Effects and Implications for Competition Policy.
Antitrust Law Journal 71:801–52.
———. 2005. The Changing International Status of Export Cartel Exemptions. American
University International Law Review 20:785–28.
———. 2006. What Determines Cartel Success? Journal of Economic Literature 44:43–95.
———. 2007. The Economic Impact of the U.S. Export Trading Company Act. Antitrust
Law Journal 27:343–86.
———. 2011. Breaking up Is Hard to Do: Determinants of Cartel Duration. Journal of
Law and Economics 54:455–92.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions
S50
The Journal of LAW & ECONOMICS
McCurdy, Charles W. 1978. American Law and the Marketing Structure of the Large Corporation, 1875–1890. Journal of Economic History 38:631–49.
Rey, Patrick, and Joseph Stiglitz. 1995. The Role of Exclusive Territories in Producers’
Competition. RAND Journal of Economics 26:431–51.
Rey, Patrick, and Jean Tirole. 1986. The Logic of Vertical Restraints. American Economic
Review 76:921–39.
Rey, Patrick, and Thibaud Vergé. 2010. Resale Price Maintenance and Interlocking Relationships. Journal of Industrial Economics 58:928–61.
Röller, Lars-Hendrik, and Frode Steen. 2006. On the Workings of a Cartel: Evidence from
the Norwegian Cement Industry. American Economic Review 96:321–38.
Sokol, D. Daniel. 2014. The Transformation of Vertical Restraints: Per Se Illegality, the
Rule of Reason and Per Se Legality. Antitrust Law Journal 79:1003–16.
Stigler, George. 1964. A Theory of Oligopoly. Journal of Political Economy 72:44–61.
Suslow, Valerie Y. 2005. Cartel Contract Duration: Empirical Evidence from Inter-war International Cartels. Industrial and Corporate Change 14:705–44.
U.S. Department of Justice. 1996. Massachusetts Tampico Fiber Distributor Charged in
Price Fixing Conspiracy. Press release. Washington, D.C. August 29. http://www.justice
.gov/atr/public/press_releases/1996/0862.htm.
U.S. Department of Justice and Federal Trade Commission. 2000. Antitrust Guidelines
for Collaborations among Competitors. Washington, D.C.: U.S. Department of Justice
and the Federal Trade Commission. http://www.ftc.gov/sites/default/files/attachments/
press-releases/ftc-doj-issue-antitrust-guidelines-collaborations-among-competitors/
ftcdojguidelines.pdf.
Varney, Christine A. 2009. A Post-Leegin Approach to Resale Price Maintenance Using a
Structured Rule of Reason. Antitrust 24(1):22–26.
Verouden, Vincent. 2008. Vertical Agreements: Motivation and Impact. Pp. 1813–40 in
Issues in Competition Law and Policy, edited by American Bar Association Section of
Antitrust Law. Chicago: American Bar Association.
This content downloaded from 198.91.37.2 on Sat, 7 Feb 2015 22:52:08 PM
All use subject to JSTOR Terms and Conditions