Vertical Restraints in an Amazon World

Authors

Martin Edwards

Abstract

Vertical restraints are a peculiarity, even among the dizzying array of contracts subject to antitrust scrutiny. While current law treats vertical restraints permissively, antitrust reformers have added this permissive treatment of vertical restraints to their list of proposed reforms. The reformers have softly proposed that courts apply a presumption of illegality standard for vertical restraints— greater scrutiny than the current standard, the rule of reason. This Article argues that doing so is inadvisable.

Producers and their consumers both want the same thing: the best overall product experience for the money. The critical economic functions of vertical restraints are to enable the manufacturer or brand to bind dealers and retailers to deliver its products to consumers in a manner that maximizes the product’s value to those consumers. Manufacturers try to accomplish this with these unique contractual tools, including price-based vertical restraints such as resale price maintenance and non-price restraints such as restrictions on selling through online platforms such as Amazon. To render these tried-and-true contract provisions illegal would upset a balance that benefits manufacturers and consumers, with no substantial corresponding benefit to anyone else.

Moreover, vertical restraints are powerful tools that manufacturers can use to counter Amazon, which reformers allege uses pressure tactics against manufacturers who do not want their products sold on Amazon’s platform. This reveals a difficult contradiction: on the one hand, reformers want to make vertical restraints illegal, but, on the other, they recognize that these very contract terms are among the most powerful tools manufacturers and dealers may have to limit Amazon’s—and perhaps other large retailers’—power in retailing and distribution. Thus, this Article argues that, as antitrust law has done for some time, it should continue to balance these competing forces through the rule of reason, rather than rushing to illegalize vertical restraints. Indeed, the reformers’ desire to upset the balance struck for vertical restraints calls into question their broader approach to increase antitrust enforcement in other contexts.

Recommended Citation

Martin Edwards, Vertical Restraints in an Amazon World, 129 Dick. L. Rev. 59 (2024).
Available at: https://ideas.dickinsonlaw.psu.edu/dlr/vol129/iss1/3