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Competition law is aimed primarily at agreements, mergers, and the actions of dominant firms. Of course, in each category, most acts are permissible. For agreements, the prohibition in the United States applies only to those that are unreasonable, interpreted as involving a suppression of competition.1 But what constitutes an agreement? This question is most important in the horizontal context, particularly with regard to price fixing, which is per se illegal and subject to competition law's strongest sanctions. In that setting, the agreement requirement plays an important role and has generated some controversy.2
Regarding vertical agreements, such as between a manufacturer and its distributors, much of the scholarly debate and doctrinal evolution has centered on which agreements should be deemed illegal, in particular, per se illegal. In recent decades in the United States, per se rules against vertical nonprice restraints (such as customer and territorial restrictions), maximum resale prices, and minimum resale prices have each, in turn, been overruled, so that the rule of reason now governs all vertical agreements.3 In other jurisdictions, notably the European Union, vertical agreements are treated more strictly.4
Before, during, and after this period over which the U.S. Supreme Court reversed the applicable precedents, one would have expected that the question of what constitutes a vertical agreement would have become well settled. Moreover, there is reason to suppose that this question would usually yield a straightforward, affirmative answer. In the horizontal setting, there are important contexts, such as price fixing, where the firms involved are not otherwise in contractual relationships, and they also hope to keep their actions secret; as a consequence, defining and demonstrating the existence of an agreement can be difficult.5 But in the vertical setting, where one firm is supplying goods or services to another, there ordinarily exist supply contracts, ranging from formal to imputed, so it might appear that an agreement always exists.
In 1919, however, the Supreme Court famously held in Colgate6 that this was not necessarily so. Under some circumstances, a supplier's policies in connection with a contractual arrangement are deemed to be unilateral. These policies may be insisted upon and de facto accepted by the downstream firm, but they do not necessarily constitute an agreement on that account. Although subsequent cases had interpreted...