In antitrust law and economics, especially in the United States, competition is considered to be an exclusively horizontal process. Firms compete only with rival firms at the same stage. But industry participants will testify that they have a competitive as well as a complementary relationship with firms from whom they buy and to whom they sell. The bargaining between firms at successive stages is the vertical form of competition. Recognizing this reality enables a superior analytical framework in which both forms of competition are present and leads to some fresh insights.
Consider a 3 stage consumer goods industry with suppliers, goods manufacturers, and retailers who resell to household consumers. In upstream vertical competition a manufacturer strives to drive down the margins of his suppliers to obtain a lower invoice cost. In downstream vertical competition the manufacturer strives to drive down his retailers’ margins to obtain a larger share of his brand’s consumer price at the latter’s expense. The manufacturer that is the most successful vertical competitor in the product category will buy cheaper and sell dearer than rival makers, thereby erecting mobility and entry barriers and gaining more market power than is indicated by his horizontal market share and HHI. Becoming a stronger vertical competitor increases a firm’s standing as a horizontal competitor and vice versa.
The discussion will explore these themes of vertical competition, from an economic and legal view point.
There is no charge to attend. Please email Ms Jenny Dix, CCLP administrator, to ensure availability of places.