Newspapers and television programs often report on public concerns over economic cartels and monopolistic strategies of major companies. Economists argue that monopolies threaten free markets, could tie consumers to a single manufacturer for a certain good, and describe the economic and public ramifications.
Others believe that a concentrated market is beneficial because the manufacturer can produce goods more efficiently, lowering costs using the economy of scale theory and through the negotiation power of an economic agent.
[Note: Every time you bargain for the price of the product the costs will depend on the amount of goods you are purchasing, in a more concentrated market, the number of units purchased by the company will be larger, and so it will be the price reduction for this reason.]
Aside from one’s personal perceptions, the competence restrictions and other clauses already discussed do not allow a market agent (the distributor) to engage in activities with a competitor brand in the designated territory. These clauses could be considered by international regulators as breaching the antitrust regulation.
The Sherman Act, which regulates antitrust violations in the US, contains an ambiguous Article 1, which states: “Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Even so, the US Supreme Court does not consider the Sherman Act a violation because according to court rulings, these activities help improve commerce. For example, refer to the exclusive distribution agreements.
Moreover, the Supreme Court allows vertical restrictions, or agreements between different agents in the production line, like manufacturers, distributors, and salespeople. The Supreme Court seems to favor economic utility over the danger of market share that these agreements may generate.
On the other hand, the European Union (EU) legally condemns such economic agreements, because in their opinion they tend to create monopolies. However, the EU has direct provisions that forbid monopoly conduct, like Article 81 of the Treaty of Rome. On the other hand, the United States allows vertical agreements, and as a result, authorizes restriction clauses on agency and distributor contracts. For example, refer to the Commission Regulation (EC) No. 2790/1999, of December 22, 1999; more specifically, how Article 81(3) of the treaty applies to vertical agreements and concerned practices.
This regulation permits such agreements without regulation if the company’s market share does not exceed 30%.
These provisions exist in developed markets, but for developing countries regulations often differ. For instance, local courts may not allow such clauses in contracts, and ignoring these laws could result in fines.
Reference: Legal > When Should a Company to Pay an Agent for one’s Services?