Much ado about nothing? Capital market reaction to changes in antitrust precedent concerning exclusive territories
This paper uses evidence from the capital markets to examine changes in the legal rules governing a form of non-price vertical restraint, namely, exclusive territories (ET). During the past three decades the U.S. Supreme Court has reinterpreted section 1 of the Sherman Antitrust act concerning the treatment of ET three times, oscillating between a "rule of reason" standard and a "per se" illegality standard. To investigate the effects of these changes, we identify a sample of publicly trades firms that are involved in ET related antitrust Litigation. When these firms win (lose) their own ET case, they experience a statistical significant stock price gain (loss). When the Supreme Court switches between standards, however, there's firms' stock prices do not respond. We also identify a sample of publicly trades franchise firms, since franchise firms do not respond. We also identify a sample of publicly traded franchise firms, since franchisors often employ vertical restrictions such as ET. Again, the stock prices of franchise firms do not appear to react when the Supreme Court announces changes in ET precedent. Our evidence indicates that as far as the capital markets are concerned, per se versus rule of reason treatment of ET is a distinction without a difference.
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