Exclusive Distribution Agreements in the Context of the Digital Economy

Economists Jorge Padilla, Helder Vasconcelos and Bernardo Sarmento authored an article for the Brazilian Public Law Magazine, Revista Direito Público, on the competitive effects of exclusive distribution agreements in the context of the digital economy.

Abstract

This paper investigates the competitive effects of exclusive distribution agreements in the context of the digital economy. By reviewing the main conclusions of the extant economics literature on the topic as well as relevant case law in the European Union, we find that while this type of contracts may lead to market foreclosure, by  heightening  entry  barriers  and/or contributing to increase rivals’ costs, exclusivity can also create important new  avenues  of  competition,  which  complicates  enforcement. 

First,  competition  for  exclusivity  must  be understood as primary means of differentiation among digital platforms, as it leads platforms to compete head-to-head  to  build  a  differentiated  offering,  thereby  enhancing  (rather  than  reducing)  inter-brand  competition and innovation efforts. Second, absent exclusivity, platform investments are potentially subject to free-riding by non-investing rival platforms, implying that exclusive dealing agreements might serve efficiency ends by protecting the exclusive right holder’s relation-specific  investments  against  opportunistic  behaviour by  competitors.

As  a result,  the  only  sensible  way  to address the  competitive  assessment  of  the  adoption  of  exclusivity  contracts in digital markets is an approach based on a case-by-case analysis, focused on finding the right regulatory balance between guaranteeing healthy competition, on the one hand, and protecting consumer interests, on the other, in an increasingly  digitalised  and  dynamic  environment  in  which  innovation  and  the  ability  to  differentiate  offerings play a key role. The paper also provides an application to the Brazilian online food delivery market. 

Read the full article (Portuguese) here

This article was originally published by Revista Direito Público and is available on their website. The views expressed are those of the authors only and do not necessarily represent the views of Compass Lexecon, its management, its subsidiaries, its affiliates, its employees, or clients.

Padilla, J., Sarmento, B., & Vasconcelos , H. . (2023). Acordos De Distribuição Exclusiva No Contexto Da Economia Digital. Direito Público20(107). https://doi.org/10.11117/rdp.v20i107.7554