Legal Definitions - vertical competition

Vertical competition describes a situation where businesses operating at different stages of a supply chain or production process compete with each other. This often occurs when a company expands its operations to a different level of the chain, such as a manufacturer selling directly to consumers, or a retailer producing its own goods that rival the brands it sells.

• Example 1: A Manufacturer Opening Its Own Retail Stores

  Imagine a well-established clothing brand that traditionally designs and manufactures garments, then sells them exclusively to various department stores and independent boutiques. If this brand decides to open its own chain of retail stores and launch a direct-to-consumer e-commerce website, it creates vertical competition.

  This illustrates vertical competition because the clothing brand, which previously operated solely at the manufacturing and wholesale level, is now competing directly with the department stores and boutiques that were once its primary customers and distribution partners. It has moved "downstream" in the supply chain to the retail level, putting it in direct rivalry with its former clients.

• Example 2: A Component Supplier Entering the Finished Product Market

  Consider a company that specializes in manufacturing advanced microprocessors, which it supplies to numerous laptop and smartphone manufacturers worldwide. If this component supplier announces its intention to design, produce, and sell its own line of high-performance laptops and smartphones under its own brand, it engages in vertical competition.

  This scenario demonstrates vertical competition because the supplier of a critical component is now directly competing with the companies that were previously its customers – the laptop and smartphone manufacturers. The supplier has moved "downstream" in the supply chain, from providing parts to creating and selling the final consumer product, thereby rivaling the businesses it once supported.

• Example 3: A Supermarket Chain Launching Its Own Private Label Products

  A large national supermarket chain, which stocks thousands of products from various food and beverage manufacturers, introduces its own "private label" brand of organic coffee, pasta, and dairy products. These private label items are priced competitively and displayed prominently alongside the national brands from other manufacturers.

  This is an example of vertical competition because the retailer (the supermarket chain) is now acting as a manufacturer and seller of its own goods, directly competing with the food and beverage manufacturers whose products it also distributes. The supermarket has moved "upstream" in the supply chain by producing its own goods, creating rivalry at the product level within its own stores.