Online commerce has transformed how firms design their distribution systems, yet EU competition law continues to treat many online-sales restrictions as suspect by default. This tension lies at the heart of today’s vertical restraints debate. While the economic theory of vertical agreements has been largely settled for decades, the legal framework has not fully absorbed those insights in Europe. The result is a mismatch between how economists understand the effects of vertical restraints and how EU law still classifies them in practice.
This post summarizes and develops the core argument of my thesis: the EU’s treatment of online-sales restrictions remains excessively formalistic, shaped by the historical objective of market integration, rather than by modern economic reasoning. The recent shift toward a more-economics approach—visible in the 2022 reforms to the EU’s Vertical Block Exemption Regulation (VBER) and in the Coty judgment—is welcome but incomplete. A more coherent alignment would require rethinking hardcore restrictions, reconsidering the active and passive sales distinction, and adopting a rebuttable presumption model for by-object infringements.
Truth on the Market readers often debate the friction between legal tradition and economic analysis. Vertical restraints, especially online-sales restrictions, provide an unusually clear example of how that friction persists, how it distorts enforcement, and how it could be resolved.
What Economics Actually Says About Vertical Restraints
Economists broadly agree on a few basic points about vertical agreements, regardless of whether they concern online or offline distribution.
Interbrand competition is what really disciplines firms
There is a common misconception that manufacturers want higher prices. In reality, they want to sell as much as possible. Vertical restraints rarely harm competition when manufacturers lack market power. In markets with vigorous interbrand competition, suppliers need retailers to sell effectively, and retailers need suppliers with attractive products.
Economic models therefore demonstrate that most vertical restraints produce efficiencies, rather than anticompetitive effects. This logic underpins the VBER’s safe-harbor mechanism and the presumption that firms with modest market shares are unlikely to harm consumers through vertical coordination.
Vertical restraints often solve real commercial problems
The classic justifications remain compelling. Double marginalization can be mitigated by resale price maintenance or other restraints that align incentives. Holdup risks and relationship-specific investments encourage restrictions that secure predictability. Free-riding concerns may justify selective distribution, distribution limitations, or quality standards. Brand image and reputational concerns may require consistent online and offline presentation, especially for luxury or high-technology products.
Consumers benefit from the resulting service, product variety, and investment levels. These insights are not controversial in the economic literature.
Economics discourages formalism
The central message of the law & economics scholarship is clear. Vertical restraints should be assessed based on their effects. Such labels as selective distribution, exclusive distribution, or online restriction do not predict competitive outcomes without context. A ban on selling through Amazon may harm consumers in one setting and benefit them in another. The point is not to presume either outcome in advance.
The wisdom from the economics literature applies not only to online-sales restrictions, which are the focus of this post, but also to other recent EU enforcement actions, such as the fines imposed on the luxury brands Guess, Chloé, and Loewe for resale price maintenance.
EU Competition Law Has Evolved but Formalism Still Dominates Online Sales
From the 1999 VBER onwards, the EU has gradually recognized these economic principles. The European Commission now openly acknowledges the role of interbrand competition and the limited risk posed by many vertical agreements. Yet this shift remains partial. Online-sales restrictions continue to be treated as inherently suspicious, largely because of how the legal framework conceptualizes passive sales and market integration.
Pierre Fabre: Formalism toward online-sales restrictions at its peak
The Pierre Fabre judgment (2011) held that a total ban on online sales in a selective distribution network restricts competition by object. The European Court of Justice (ECJ) rejected the idea that preserving a prestigious image could justify the restriction, relying on earlier free movement of goods cases, rather than on economic reasoning. It gave little guidance on Article 101(3) and essentially treated online sales as synonymous with passive cross-border sales, which should remain unrestricted to support market integration.
From an economic standpoint, this reasoning is difficult to defend. A total online ban may be undesirable, but that conclusion should follow from evidence rather than from a formal label. The ECJ did not consider whether there was sufficient interbrand competition among manufacturers or whether manufacturers had any economic justifications for imposing such restrictions. As such, the Pierre Fabre judgment entrenched the view that online restrictions are suspect by their very nature.
Coty: Progress, but only partial
Coty (2017) corrected some of the rigidity introduced by Pierre Fabre. The ECJ upheld a platform ban aimed at preserving a luxury aura, accepted the legitimacy of brand-image concerns, and rejected the argument that marketplace bans automatically amount to hardcore restrictions. This recognition was a significant step toward economic alignment.
Coty did, however, create a new formalistic problem. By emphasizing the luxury nature of the goods, the ECJ inadvertently encouraged enforcers and practitioners to treat luxury as a legal category. Economists who highlighted the example of luxury goods never intended to craft a new rule for a new product class. They used the luxury example to illustrate broader economic logic that applies to many vertical settings. After Coty, some national authorities began focusing on whether products truly qualified as luxury, rather than on whether the restraint improved consumer welfare. This outcome shows how even well-intentioned judgments can reinforce formalism.
The 2022 VBER and Guidelines: Codifying case law instead of fully embracing economics
The revised VBER 2022 introduced a new hardcore restriction that prohibits limitations preventing the “effective use of the internet.” Although this appears to be a more stringent stance, it mostly codifies Pierre Fabre. Exceptions for marketplace bans reflect Coty and the Commission’s recognition that not all online limitations are harmful.
The Guidelines introduced helpful clarifications on dual pricing, quality standards, and the removal of the equivalence requirement between online and offline criteria. These changes move toward economic rationality. Yet the framework still hinges heavily on the active and passive sales distinction, a concept that made sense in an offline world but sits uncomfortably in the age of the interwebs. Online commerce reduces search costs and blurs the line between active promotion and passive accessibility. Treating online sales as inherently passive rests on assumptions that no longer hold.
Why the EU Still Hesitates to Embrace Economic Theory
If economics has provided coherent guidance for decades, why does EU law lag?
Market integration as a foundational objective
The EU’s historic objective of eliminating barriers to cross-border trade continues to shape enforcement. The formal presumption persists that restrictions on passive sales harm integration, even in markets where online channels contribute little to cross-border transactions. This integration rationale explains why the ECJ in Pierre Fabre saw online bans as inherently problematic.
Empirical evidence suggests, however, that strict rules on online restrictions have limited impact on actual integration. Consumers do not often engage in cross-border online shopping for reasons unrelated to vertical restraints, such as language barriers, delivery costs, and after-sales service issues. Hence, integrationist views lack evidentiary support.
Price competition remains prioritized over nonprice factors
The legal system places heavy weight on maintaining intrabrand price competition. This emphasis leads enforcers to distrust restraints that might allow higher retail prices, even when the restrictions yield better service quality, product positioning, or brand investment. Economists, by contrast, balance price and nonprice effects and recognize that higher prices do not automatically imply harm.
Underenforcement risks and administrative convenience
Formalistic rules reduce enforcement complexity and address trepidation about underenforcement. By treating certain restraints as by-object infringements, authorities avoid complex effects-based assessments. This may be administratively convenient, but it is not economically justified.
Reforms that Would Bring the Framework Closer to Economics
The EU does not need to adopt the U.S. rule of reason to improve coherence. It could preserve its commitment to market integration while modernizing the treatment of online-sales restrictions in several targeted ways.
Reconsider hardcore restrictions and the active and passive sales distinction
The active and passive sales distinction rests on assumptions tied to physical markets. Digital commerce challenges those assumptions. If the aim is to prevent artificial partitioning of the single market, enforcement should focus on actual effects on integration, rather than on form. Removing or reinterpreting the hardcore restrictions list would reduce unnecessary formalism.
Use consumer welfare as an explicit benchmark
Integration is important, but it has overshadowed consumer welfare in vertical-restraints cases. Economists have long stressed the need to evaluate vertical restraints based on quality, variety, innovation, and service, alongside price effects.
Introduce a rebuttable-presumption model for by-object restrictions
Current by-object doctrine produces de facto per se illegality for many online restrictions. Yet the ECJ has repeatedly insisted that context matters.
Scholars such as Giorgio Monti have proposed a rebuttable-presumption model. Under this approach, certain practices could still be presumed harmful, but firms would have a meaningful opportunity to provide evidence to the contrary. The individual-exemption mechanism of Article 101(3) is theoretically flexible but practically ineffective. Very few parties succeed in obtaining individual exemptions. A rebuttable-presumption mechanism would preserve legal certainty, while also allowing economic reasoning to operate.
The Path Forward
Online-sales restrictions expose a deeper issue within EU competition law. The EU has embraced the language of economics but has not fully internalized its logic. The caselaw increasingly references effects-based reasoning, yet the structure of the VBER and the reliance on historical integration goals continue to push enforcers toward formalistic assessments.
A more coherent approach would recognize three realities:
- Vertical restraints are rarely harmful in competitive markets;
- Online commerce does not fit neatly into distinctions crafted for a pre-digital era; and
- Formalistic rules create distortions and encourage enforcement focused on labels, rather than on competitive impact.
The EU has already taken steps toward a more economically grounded framework. But those steps do not resolve the underlying tension. A shift toward a rebuttable-presumption model for by-object restrictions, combined with a more realistic view of online sales, would allow EU law to protect both competition and integration without sacrificing economic efficiency.
For a legal system that increasingly aspires to modernize its analytical tools, online-sales restrictions offer a promising place to start. The economics is settled. The law now needs to catch up.
