Are vertical restraints pro- or anticompetitive? Lessons from Interstate Circuit

At the heart of antitrust law is the prohibition on horizontal collusion. T o enforce this prohibition, the law must accurately define what collusion e ntails. One of the most controversial areas in antitrust is the issue of ve rtical restraints. In the last 20 years, economists have come up with any n umber of pro- and anticompetitive rationales for such restraints. Given thi s, perhaps one of the most important antitrust cases is Interstate Circuit v. United States, a case that combines issues of horizontal collusion and v ertical restraints. A review of the facts shows that collusion cannot be pr operly inferred from the behavior of the parties involved and that the rele vant vertical restraints had efficiency-enhancing properties. We then use I nterstate Circuit's behavior to generate a theory of vertical restraints th at not only explains the events in the case but also addresses an important controversy in the vertical restraints literature.