Exclusivity contract
Introduction
Vertical agreements (better known as vertical restraints) are operating mechanisms between vertically related independent economic agents that limit competition "Competition (economy)").[1] These practices consist of agreements between companies at different levels of a production and distribution chain to restrict the conditions under which they buy, sell or resell certain products or services.[2].
Vertical restrictions are part of relative monopolistic practices, actions carried out by companies with substantial market power that have the intention or effect of displacing their competitors.[3] In Mexico, relative monopolistic practices are regulated by the Federal Economic Competition Law, which stipulates 13 sanctionable behaviors and establishes that they may be eligible for sanctions if it is demonstrated that they affected the well-being of the consumer and that they did not generate efficiency gains greater than their anticompetitive effects. (such as the introduction of new goods or services, or the reduction in costs through innovation).[4].
Vertical restrictions can be pro-competitive when they increase the levels of productive and allocative efficiency, reduce prices or improve the quality of goods or services, benefiting the final consumer.[1] However, these restrictions can negatively affect competition within the vertical chain ("intra-brand") and in rival production structures ("inter-brand"). Although they can generate efficiencies, they may not be optimal from social well-being,[1]although if reference is made to a company without substantial market power the reaction may be more positive or neutral. In that sense, vertical restrictions can be both a legitimate tool to coordinate and improve value chain processes, and a mechanism to limit competition. A possible sanction on these practices will depend on the weighing of efficiencies, risks, and related anticompetitive effects.
Types of Vertical Agreements
The following list describes some of the most important vertical agreements. It should be noted that these can also be applied in combination.
Among the most relevant intra-brand restrictions, that is, those that hinder free competition between different levels of production chains, the following stand out:
Regarding inter-brand restrictions, the most common are:.
In the LFCE, exclusivity behaviors (contracts, territories, refusal of treatment), vertical price restriction (resale prices, other conditions), and loyalty discounts or conditional transactions (subject to the competition's products not being sold) are considered relative monopolistic practices.[3].