Are Vertical Restraints Pro- or Anticompetitive? Lessons from Interstate Circuit

At the heart of antitrust law is the prohibition on horizontal collusion. To enforce this prohibition, the law must accurately define what collusion entails. One of the most controversial areas in antitrust is the issue of vertical restraints. In the last 20 years, economists have come up with any number of pro- and anticompetitive rationales for such restraints. Given this, perhaps one of the most important antitrust cases is Interstate Circuit v. United States, a case that combines issues of horizontal collusion and vertical restraints. A review of the facts shows that collusion cannot be properly inferred from the behavior of the parties involved and that the relevant vertical restraints had efficiency-enhancing properties. We then use Interstate Circuit's behavior to generate a theory of vertical restraints that not only explains the events in the case but also addresses an important controversy in the vertical restraints literature. Copyright 2001 by the University of Chicago.