Vertical Restraints

Abstract

This article advances several reasons why EU competition policy on vertical restraints has been a failure. First, the distinction between price and nonprice restraints is inconsistent, since the economic effects of both practices are similar. Second, EU competition law creates a number of inefficiencies that cause a negative impact on social welfare; an example is the ban on absolute territorial protection that does not allow a full protection from free-riding. Third, it is doubtful that the inefficiencies of EU competition law can be justified by the market integration goal, since the rules may turn out to be ineffective in reaching this objective. Fourth, EU competition law on vertical restraints has created negative side effects: it has put an end to experimentation and innovation of competition rules at the member-state level and induced private interests groups to spend a lot of effort in lobbying national regulators. The example of resale price maintenance for books serves as an illustration of the latter problem. Several of the above pitfalls have been indicated by Richard Markovits in his treatise on U.S. antitrust law and EU competition law. These criticisms are supported in this paper and further expanded by a discussion of additional errors that have made the EU competition rules on vertical restraints a policy failure.