Intrabrand Restraints and the Theory of the Firm

The Sherman Act's distinction between "unilateral" and "concerted" action is particularly salient where intrabrand restraints are concerned. Minimum resale price maintenance that takes the form of concerted action is unlawful per se, while price maintenance that takes place within a single firm cannot violate the Sherman Act. While courts scrutinize some unilateral conduct under Section 2, intrabrand restraints do not constitute the sort of "exclusionary conduct" that can offend that provision. Courts and leading scholars have offered two distinct justifications for the distinction between concerted and unilateral restraints. First, concerted restraints supposedly create a greater competitive risk than, say, price coordination that occurs within a single firm. Second, cooperation within a single firm purportedly creates significant efficiencies when compared to analogous concerted action. This article argues that both justifications for this differential treatment reflect neoclassical price theory's technological conception of the firm. By contrast, transaction cost economics (TCE) and its theory of the firm undermine any supposed economic distinction between concerted and unilateral intrabrand restraints. TCE treats the firm as a nexus of contracts between numerous individual input owners, thereby revealing that "unilateral conduct" is in fact the product of cooperation by individual input owners within the legally-determined boundaries of a single firm. Though deemed "unilateral," cooperation within a single firm eliminates rivalry that would otherwise occur and thus poses the very same risk of anticompetitive harm as intrabrand concerted action. TCE also teaches that unilateral and concerted intrabrand restraints are simply alternative vehicles for reducing transaction costs and that concerted intrabrand restraints can sometimes produce greater economic benefits than unilateral" conduct. As a result, there is no economic rationale for subjecting unilateral and concerted intrabrand restraints to disparate treatment, whether vertical or horizontal, and various considerations suggest that courts should declare all such restraints lawful per se