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 Público, 20(107).