Vertical restraints in a contract
A)are generally illegal in the U.S.
B)usually benefit the firm that produces the raw inputs to the production process.
C)are used in vertical mergers.
D)can approximate the outcome of a vertical merger.

Question

Quizplus · Accepted Answer

Vertical restraints can be used to approximate the outcome of a vertical merger, by restricting the behavior of the downstream firms to align their interests with those of the upstream firms. This can lead to increased efficiency and a reduction in transaction costs, but can also have anti-competitive effects. Vertical restraints are not generally illegal in the U.S., although some types of restraints may be deemed illegal under antitrust laws if they are likely to harm competition. Vertical restraints do not necessarily benefit the firm that produces the raw inputs, as they can also benefit downstream firms by reducing uncertainty and improving coordination. Vertical restraints are not the same as vertical mergers, although they may be used in conjunction with mergers or acquisitions.

Vertical Restraints in a Contract