Relative monopolistic practices, also known as vertical restraints, are commercial strategies that, under certain conditions in which they are carried out, distort, or restrict competition and free market access.
The Federal Antitrust Law (LFCE) prohibits the imposition of certain practices by an economic agent with substantial power in the relevant market.
The LFCE of 1992 prohibits vertical market division, exclusive dealing, resale price maintenance, tied sales, refusal to deal, boycotts, and established in Article 10, Section VII: “In general, any act that unduly damages or impedes the process of competition and free market access in the production, processing, distribution and commercialization of goods or services.”
Initially, the Federal Competition Commission (CFC) conducted several investigations under Article 10, Section VII of the LFCE and sanctioned several companies for engaging in this anticompetitive conduct. However, the Supreme Court of Justice declared this article unconstitutional, as it violated the guarantee of legality in matters of sanctioning principles, since the provision did not contain the essential elements of the conduct, nor the form, content, and scope of the infringement. As a result, a significant number of CFC decisions were declared null and void.
This led to the amendment of Article 10 of the LFCE in 2006, which, on the one hand, eliminated this general clause and, on the other hand, added the following practices as relative monopolistic practices: price predation, cross-subsidization, rebates or incentives subject to exclusivity, discrimination on equal terms, raising of competitors’ costs, sales subject to conditions, and the new LFCE added the denial of access to an essential facility and margin squeeze.
For these practices to be considered anticompetitive, the following conditions must be met:
- That the economic agent engages in conduct prohibited by the LFCE.
- That the economic agent has substantial power in the relevant market. The 2011 amendment to the LFCE provides that substantial power may also be jointly determined, i.e., it may be held by several economic agents.
- That the conduct has the purpose or effect of unreasonably excluding other market participants, significantly impeding their access to the relevant market, or creating exclusive advantages for one or more persons in the relevant market. The new LFCE clarifies that the purpose or effect of exclusion, prevention of access, or creation of exclusive advantages may be in the relevant market or related markets.
The 2006 LFCE established exclusion of liability if the party summoned to the like-trial proves that the conduct results in efficiencies that favor the process of economic competition and free market access, so the net contribution to consumer welfare outweighs its anticompetitive effects. The new LFCE establishes that the efficiencies are beneficial to the competitive process when they outweigh the potential anticompetitive effects, and result in an increase in consumer welfare.
The relevant market is an exercise in determining substitution in both the goods and services and geographic dimensions. Substantial power is the ability of an economic agent to fix prices or restrict the market. Both are analytical tools to determine the impact of the conduct on the market, but do not imply any unlawful conduct.
The final element of analysis to consider the commercial strategy as unlawful is that, because of the conduct, the access of an economic agent is displaced or prevented, or exclusive advantages are established in favor of someone, in the relevant market, or related markets.
In the absence of any of the above elements, the conduct cannot be considered illegal and, if all these elements are proven, the economic agent summoned who proves that the efficiency gains outweigh the anticompetitive effects would be exempted from any liability.
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