Meaning
Regulatory framework that permits certain types of agreements that would otherwise violate competition laws by providing a safe harbor for specific market behaviors. The european block exemption often applies to vertical agreements between manufacturers and distributors where market shares remain below a fixed threshold.
Vertical Restriction
Agreements between companies at different levels of the production chain are generally allowed if they promote efficiency without harming the consumer. Under the european block exemption, a manufacturer can grant exclusive territories to certain distributors to encourage them to invest in local marketing and service.
Market Share
The protection of the safe harbor is lost if the parties involved control too much of the total market. Most regulations set a limit at thirty percent of the relevant market for both the supplier and the buyer. When this limit is exceeded, the agreement must be individually assessed for its impact on competition.
This ensures that large dominant players do not use exclusive contracts to block new entrants from reaching customers.
Compliance Scope
Certain behaviors such as price fixing or restricting passive sales are always prohibited regardless of market share. Companies must review their distribution contracts regularly to ensure they stay within the legal boundaries defined by the commission.
