To Issue Or Not To Issue Guidance: Comments On Geradin And Pereira Neto

In a recent working paper, Damien Geradin and Caio Marioda Silva Pereira Neto (hereafter GN) argue that the Brazilian competition system would greatly benefit from the adoption of guidelines like the European Commission Guidance Paper, which offers a legal and economic methodology to implement an “effects-based approach” to vertical restraints adopted by a dominant firm. This paper notes that while their proposed effects based analysis is far superior to per se treatment of vertical restraints, this framework can be further improved by careful attention to the challenges raised by the so-called “Chicago School” regarding the impact of vertical restraints. Further, whether it would be advisable for Brazil to write formal guidances regarding its policy toward vertical restraints should be evaluated in light of both the nature of Brazilian competition laws and the flexibility of the Brazilian economy.

GN begin with an excellent overview of the evolution of economic thinking regarding vertical restraints by a dominant firm. Thus, before the 1950s, vertical relationships between a dominant supplier and its customers that restricted the ability of those customers to deal with the dominant firm’s rivals were viewed as unambiguously anticompetitive based on a rather underdeveloped concept of monopoly leveraging or foreclosure. These concepts do not appear to have been well thought out or modeled, but the idea is that the monopolist could somehow leverage its monopoly power in one market into another.