These occur where the weakened competitive positions of C and of other firms like it are such as to threaten the effectiveness of the competitive process itself. A and B may suffer in the longer term as a result of the diminution of competition. That is, at some point the favourable presumption made in respect of the relevant business conduct is withdrawn. To illustrate, if a firm reduces its costs and passes on some of the benefits to its customers in the form of lower prices, complaints by competitors that the lower price had negative external effects on their own profits would usually be dismissed immediately by competition policy authorities. If, on the other hand, a price reduction is made by a dominant firm with predatory intent, then the normal presumption that price cuts are beneficial would be set aside, in recognition of the possible adverse, longer-term effects of the strategy on consumer interests.
Economic analysis suggests that the same reasoning is relevant in vertical restraint cases.
Agreements should be presumptively beneficial save in circumstances of market dominance, where the restraints may be an aspect of anti-competitive conduct. Thus, where there is market dominance the agreements should be subject to a rule of reason evaluation. The economics literature Much of the recent theoretical literature on vertical restraints has attempted to identify the efficiency effects of different types of restraint in different circumstances. For example, it is often assumed that there is a monopoly or duopoly at one or other of the stages of supply, and that potential competition is absent. Nevertheless, the conclusions that vertical restraints are beneficial to efficiency in some circumstances and damaging in others do tend to support a rule of reason approach in circumstances of market dominance.