Brand Bidding Restraints Revisited: What Is the Appropriate Economic and Legal Framework for the Antitrust Analysis of Vertical Online Search Advertising Restraints?

Abstract

This article explores the law and economics of brand bidding restraints which constitute the most novel type of vertical restraints imposed by brand owners on their distributors in digital markets. The article tests and critically reflects on the restrictive approach European competition watchdogs have recently adopted towards these brand bidding restraints. It contends that this harsh antitrust treatment of brand bidding restraints is not sufficiently grounded in the economic analysis of vertical restraints. In proposing a comprehensive framework for the legal and economic analysis of brand bidding restraints, the article makes three principal contributions. First, it asserts that brand bidding restraints can have a number of procompetitive effects by internalizing advertising-related externalities, addressing free-riding on display and traditional advertising and facilitating fixed cost recovery through price discrimination. Second, the paper considers different ways through which brand bidding restraints may harm competition and consumer welfare when they disproportionately affect infra-marginal consumers, prevent meaningful intra- and inter-brand comparisons or result in price discrimination on the basis of search costs rather than brand preferences. Moreover, brand bidding restraints are of particular concern when adopted in the context of dual distribution systems where vertically integrated brand owners have an incentive to raise their retailers’ costs to prevent them from cannibalizing on their own sales channel. Third, the article explore various filters that may inform an effects-based analysis of brand bidding restraints. In this respect, the article makes a number of policy recommendations for the future antitrust analysis of brand bidding restraints. These proposals could also inform the ongoing revision of the Vertical Block Exemption Regulation (VBER) and Vertical Guidelines in the EU and in the UK. brand bidding restraints, vertical online search advertising restraints, digital vertical restraints, e-commerce sector inquiry, B2-98/11 Asics, Case COMP/AT.40428 Guess, vertical restraints, Vertical Guidelines, Vertical Block Exemption Regulation