In this chapter, the authors survey the economic principles underlying distribution arrangements between upstream firms (manufacturers) and downstream firms (such as wholesalers, dealers, or retailers). The focus is on the potential procompetitive and anticompetitive effects from vertical restraints, such as exclusive dealing, loyalty discounts, and most-favored nation clauses. The discussion applies generally to franchisor-franchisee relationships as well. All of the effects identified by economic theory have implications for how the antitrust laws treat the distribution or franchise arrangements, particularly given most of these arrangements are analyzed under a rule of reason.
This chapter appears in the 2023 edition of Antitrust Economics for Lawyers. For more information, click here.