Introduction
Suppliers and providers of online intermediation services (OIS) often seek to ensure that their business partners do not offer more favourable conditions elsewhere. They do so by including so-called most favoured nation ("MFN") or parity clauses – provisions requiring a distributor, retailer or business user not to offer better terms to others or on competing channels.
Such clauses are widespread in both offline and online distribution, but their treatment under EU competition law, particularly in relation to OIS providers, has evolved significantly. Do these clauses promote efficiency by preventing free-riding and ensuring consistent pricing, or do they suppress competition and entrench market power?
This two-part blog examines how EU competition rules apply to parity obligations under the new Vertical Block Exemption Regulation (“VBER”) and the Vertical Guidelines (“VGL”).
- In Part I (below), we outline the economic rationale, the main competition concerns and how the 2022 reform reshaped the legal framework.
- Part II (to follow) will explore how parity clauses can be drafted and applied in practice to remain on the right side of the law.
What are parity or MFN obligations?
A parity or most favoured nation clause typically requires one contracting party to offer the other conditions that are “no less favourable” than those offered elsewhere.
In a distribution setting, two main types can be distinguished:
- Narrow parity obligations, which prevent a distributor or platform from offering better terms on its own direct channels (e.g. its own website or physical shop) than those offered through the contracting partner.
- Wide parity obligations, which prevent better terms from being offered on any competing platform or sales channel.
In addition, parity obligations can apply to different parameters — not only price, but also availability, promotions, delivery conditions, or commissions.
Economic rationale and competition risks
Parity obligations may serve legitimate purposes. They can:
- Prevent free-riding between channels, by ensuring that a distributor investing in promotion is not undercut by cheaper rivals.
- Create incentives to invest in services, customer support or infrastructure, since the supplier guarantees a level playing field.
- Preserve brand image and price coherence, particularly for selective or premium distribution systems.
However, parity obligations can also restrict competition. They may:
- Reduce intra-brand competition, by limiting resellers’ freedom to offer lower prices or better conditions.
- Raise barriers to entry for new platforms or distributors, who cannot attract customers with better deals.
- Facilitate collusion by softening price competition and increasing market transparency.
- Entrench dominant platforms, especially when imposed by large online intermediaries across many suppliers.
Because of these potentially mixed effects, the treatment of parity clauses under EU competition law depends heavily on their scope and market context.
The old regime: a cautious tolerance
Under the former VBER (Regulation 330/2010) and the old Vertical Guidelines, parity clauses were generally covered by the block exemption, provided that both parties’ market shares did not exceed 30% and that the agreement did not contain any “hardcore restriction.”
In practice, however, several national competition authorities began to question the compatibility of wide parity clauses – particularly those used by OIS providers in online hotel booking markets – with Article 101(1) TFEU. Some authorities required OIS providers to drop such clauses, arguing that they reduced price competition between booking channels and hindered entry by smaller rivals.
This enforcement experience laid the groundwork for a more differentiated approach in the 2022 reform.
The new regime: differentiation between “wide” and “narrow” parity
The current VBER (Regulation 2022/720), in force since 1 June 2022, draws a clear line between types of parity obligations imposed by providers of online intermediation services (OIS):
- Wide retail parity obligations imposed by OIS providers are now excluded from the benefit of the block exemption.
- Article 5(1)(d) VBER explicitly states that obligations preventing a buyer from offering more favourable terms on competing platforms (or other third-party online intermediation services) fall outside the safe harbour.
- These clauses therefore require an individual assessment under Article 101 TFEU.
- Narrow parity obligations — such as those preventing better terms on the buyer’s own direct channel — remain covered by the block exemption, provided that the other VBER conditions are met (notably the 30% market share thresholds).
The Vertical Guidelines (§ 4.4.4 and § 8.2.5) further clarify that parity obligations are not in themselves “hardcore restrictions,” but their effects must be carefully assessed where markets are concentrated or where several platforms use similar clauses in parallel.
Cumulative effects and possible withdrawal of exemption
Even where a parity clause is in principle block-exempted (for example, a narrow parity obligation), competition concerns may still arise in specific market conditions.
Under Article 6 VBER, the European Commission or a national competition authority may withdraw the benefit of the block exemption if a network of similar agreements — for instance, multiple narrow parity clauses across major OIS providers — produces cumulative effects that restrict competition.
What this means in practice
The practical consequences are clear:
- Wide or across-platform parity obligations imposed by OIS providers are now outside the safe harbour. They require a case-by-case assessment, weighing any efficiencies against restrictive effects.
- Narrow parity obligations and parity clauses outside the OIS context generally remain block-exempted, subject to the 30% market-share threshold and the absence of cumulative effects.
- Parties should be prepared for greater scrutiny of parity obligations in digital intermediation markets, where network effects and concentration are significant.
Looking ahead
Parity obligations have moved from a relatively obscure contractual tool to a focal point of vertical enforcement. The 2022 reform marks a decisive shift: the Commission now views wide parity clauses with suspicion, while still recognising potential efficiencies for narrower forms.
In Part II of this blog series, we will translate these legal developments into practical guidance. We will discuss how parity clauses can be structured and monitored to remain within the safe harbour, what factors to consider when individual assessment is required, and what lessons can be drawn from recent enforcement practice.
Stay tuned for part II – Parity / MFN Obligations (Part II): Designing Safe and Compliant Clauses.
This blog is part of the EU Distribution Blog Series launched by Banning. The series follows the structure of the Vertical Guidelines and Vertical Block Exemption Regulation (VBER). New contributions are published on a regular basis.
If you have any questions about the contents of this note, please contact Minos van Joolingen, Martijn Jongmans, Sophia Wittkämper or Iris Graumans of Banning’s Competition & Regulatory Team, telephone number +31 73 692 77 52.
