Vertical agreements on digital markets

Abstract

Introduction: Moldovan competition regulations have been modernized in 2012 in the spirit of European directives. However, European entrepreneurial experience, competitive culture, and case law in the field of competition rules’ enforcement are far above. The absence of an extensive experience in this field leads often to confusion about the practical application of competition rules, and the risk exists that pro-competitive economic behaviour is wrongly blamed as an anti-competitive practice. Vertical restraints may be often identified in business contracts with vertical structures, such as supply, distribution, franchising, and agency agreements, whether such contracts are implemented in traditional or digital markets. Digitization and innovative technological solutions have substantially changed the production and distribution chain of goods and services. A good example in this sense is the book market where digitization has had a sensational effect on competition. The launch of the Kindle by Amazon in 2007 has shaken the market for e-books traded online, leading to settlements between major book publishers and e-book distributors agreeing on parity obligations, which have raised competition concerns with authorities in several countries. Agreements between print, e-book, and audio-book publishers and their distributors (Amazon, Apple) have been subject to competition investigations by US and EU competition authorities, as well as by the European Commission, where potentially anticompetitive vertical restraints have been identified. Aim: This article aims to investigate the boundaries between the legal and economic essence of vertical restraints; the benefits that such restraints may have over the competition and the impact of digitalization on the firms’ behaviour when agreeing on vertical restraints in their new business models. Method: To study the subject approached in this article, the following research methods were applied, such as analysis and synthesis of conceptual approaches to the use of vertical restraints in the digital economy, to elucidate the factors influencing the firms to use vertical restraints in their business activity and to formulate conclusions and own opinions about how the digitalization influenced the competitive assessment of vertical restraints. Findings: Vertical restraints are not always a peril for competition, and their primary purpose is to remove market failures such as double marginalization, free riding, information asymmetries, or the risk of not recovering significant investments. They may have a pro-competitive effect, but sometimes it is impossible for businesses to clearly determine the limit beyond which they cannot agree upon vertical restrictions in their contracts. A proper understanding of vertical restraints, their necessity, and how they "behave" in the digital world can help entrepreneurs to use them rationally, leading to efficiency gains for both new business models and society at large. At the same time, national competition rules are to provide the necessary protection of markets and consumers from anticompetitive vertical restraints. CZU: 339.137.2:[339.9:004.738.5]; JEL: D41, K21, DOI: https://doi.org/10.53486/dri2022.04