The issue of exclusive dealing and its economic impacts has received extensive attention in a number of recent cases, including Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd1, Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2)2 and Melway Publishing Pty Ltd v Robert Hicks Pty Ltd.3 Moreover, concern about exclusive dealing remains high on the public policy agenda, and is especially significant in respect of small business.

The economics of exclusive dealing are complex and have been an area of substantial research in recent years. A specific area of analysis has been that of exclusive distribution – that is, situations in which a manufacturer requires dealers to only distribute products bearing its brand, or products that it approves or specifies. Given the prominence of these issues, it seems timely to seek to summarise and set out in more accessible terms the main findings of that research. That is the objective of this paper.

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economics_of_exclusive_distribution_HE_june_2003.pdf

Although markets are usually defined in terms of opportunities for demand and supply-side substitution, there are numerous instances in which competition centres on the sale of packages of items which are economically distinct but in some sense complementary. Subject to certain conditions being met, the package involved can be viewed as constituting the relevant market, which is then conventionally referred to as a "cluster market".

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papers-ergas-cluster.PDF

Recent models which claim to provide examples of profitable foreclosure—when a firm weakens competition by reducing its access to customers or inputs—have led to calls for more aggressive antitrust activity by courts and regulators. However, we show that the alleged anticompetitive behavior of these models is either typical of competition, or simply implausible. In addition, even if foreclosure occurs, it is almost always confined to the short run, and its efficiency consequences are commonly ambiguous. As a result, the new literature on foreclosure provides little impetus for intervention by poorly informed regulators.

In most of the models examined, the 'foreclosing' firm earns profits equal to its cost advantage as is typical of Bertrand competition, or makes profits because it was an early investor/innovator. Such profits can hardly be considered anticompetitive, and in any case can rarely be maintained beyond the short run. In addition, in many of these models vertical coordination increases efficiency, so even if foreclosure occurs, overall efficiency could improve. In the remaining models foreclosure obtains because the incumbent, but not entrants, can coordinate buyers. Only allowing incumbents this privilege is implausible, except perhaps in the short term

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papers-ralph-foreclosure.pdf

Let me say at the outset that I am very pleased to comment on this paper. It deals with an important issue in a thoughtful and thought-provoking way. Having said that, I believe that it is seriously flawed. My purpose here is to set those flaws out. In essence, the paper proposes that s36 be modified through an “effects test” – that is, a test that assesses whether the conduct alleged to be in breach will have the effect or likely effect of substantially lessening competition. The authors recognise that it is not easy to define or identify anti-competitive effects. They also acknowledge that there is a concern that the resulting uncertainty might deter firms from engaging in actions that while they harm competitors do not harm competition. So as to address these concerns, the authors propose that the effects test be given a particular definition, set out at some length in their paper.

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papers-ergas-commerce-apr98.pdf

The Industry Commission's Information Paper on Merger Regulation (henceforth referred to simply as 'the Information Paper' contains numerous errors of fact, law and analysis. My goal here is not to examine these in detail (a task already well accomplished by Warwick Anderson, Tim Grimwade, Jill Walker and Luke Woodward in a forthcoming paper in the Competition and Consumer Law Journal) but rather to explore some of the central themes in the Industry Commission's Paper.

A review by Henry Ergas of the Industry Commission's information paper on merger regulation. Competition and Consumer Law Journal.

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papers-ergas-ACCCmerg.PDF