Toward an Economic Approach to Agency Agreements

Posted by D. Daniel Sokol

Angela Huyue Zhang (Herbert Smith) has posted Toward an Economic Approach to Agency Agreements.

ABSTRACT: It is a long-standing antitrust principle that agency relationships are exempt from price fixing violations. But the agency relationship must be "genuine." To discern genuine agency agreements, the prevailing approach adopted in both the United States and the EU focuses on the amount of risk incurred by the agent in relation to the distribution of the manufacturer's goods. Yet this approach has tended to obscure the economic nature of agency relationship. The real question to ask is not whether the agent has incurred any risk, but instead whether in a given case an agency model, rather than a distribution model, actually constitutes a more efficient form for organizing distribution functions between the contracting parties. In fact, over a quarter of a century ago, Judge Posner proposed a business justification approach for analyzing agency agreements in Morrison v. Murray Biscuit. Building on Morrison and on economic literature of property rights and agency problems, this article argues for an economic approach to discern genuine agency agreements. It also considers the unintended consequences that could result from legal constraints and, in particular, the implications for recent antitrust investigations into the e-book and online travel agency industries.