Absolute Territorial Protection and Competition in the EU: An Economic Approach

Abstract

Antitrust law enforcement against vertical restraints has made great progress since the 1970s, building on the advances in economic thinking. Challenges to vertical mergers are rare and most vertical restraints are not prohibited without an analysis of their anticompetitive effects. Most jurisdictions have moved from the strict judicial and administrative enforcement of the 1960s and 1970s to a more balanced view of vertical relationships and vertical restraints based on economics.There are some exceptions. In the US, tying is still nominally a violation per se, but the courts are requiring a showing of market power. In the EU, absolute territorial restrictions are prohibited by object (under Article 101 TFEU), and in all vertical contracts aiming at creating separate territories, irrespective of the market share of the parties involved, most channels of arbitrage between territories need to be left open. Similarly, absolute territorial restrictions imposed unilaterally are anticompetitive under Article 102 TFEU if they are put in place by a dominant company whether they produce an anticompetitive or a welfare increasing effect. This approach needs to be changed. Agreements and practices leading to territorial protection need to be assessed under an effects-based approach (both when they have their origin from an agreement and from a unilateral conduct). The trade-off between competition and market integration concerns does not exist. The more firms are left free to negotiate their contracts, the more competition is increased and the more convergent the internal market becomes. This extends also to absolute territorial restrictions that have to be analyzed on a case by case basis and under a market power constraint.