Agency and Franchising Under Competition Law: Who Can Set the Price?

Agency and franchising are the two structures that most often persuade companies they can control resale prices lawfully — and the two where that belief is most often mistaken. The distinction between them, and between genuine and sham agency, decides whether a pricing instruction is a lawful internal decision or a hardcore RPM infringement. This guide draws the lines, closing the vertical-agreements pillar of our Competition & Antitrust hub.

Why does the agency distinction matter so much?

Because it determines whether Article 101 applies at all. In genuine agency, the agent acts as an auxiliary organ of the principal — economically part of the same undertaking — so instructions about price, customers and terms are internal management, not an agreement between competitors or between undertakings at different levels. That is a total exemption, not a safe harbour: no market-share limit, no hardcore list.

Which is exactly why authorities scrutinise the characterisation hard. A “commission agent” who takes title to stock, funds inventory, bears bad-debt risk, invests in a branded showroom and carries the loss on unsold goods is an independent reseller wearing an agency label — and the principal’s price instructions are RPM. The Ship Naming and fuel-retail lines of cases (notably the CEPSA and Repsol judgments on service-station agreements) turned on precisely this analysis, with courts examining who really bore stock, price-variation and investment risk. Companies restructuring distribution into agency to regain pricing control should expect the arrangement to be tested on economic substance, not drafting.

What does the risk test examine?

Three risk categories, all of which must be absent or insignificant. Contract-specific risks: financing stock, ownership of goods, liability for damage or non-performance to customers, cost of unsold goods (unless the agent can return them without charge), and after-sales obligations at the agent’s expense. Market-specific investments: equipment, premises, training or advertising that is sunk and specific to the activity, and not reimbursed if the relationship ends.

Other-activity risks: where the principal requires the agent to undertake related activities (transport, storage, servicing) at its own risk in the same market. The 2022 Vertical Guidelines refreshed this analysis and addressed a modern variant: online intermediaries. A platform can in principle be a genuine agent, but the guidelines treat providers of online intermediation services as suppliers rather than agents for block-exemption purposes, and warn that dual-role platforms — intermediating while also competing on the same market — cannot rely on agency to escape the rules. Any marketplace considering an agency model to set prices should read that passage before, not after, the restructuring.

How are franchise systems assessed?

As vertical agreements with a special justification. Franchisees are independent businesses, so the franchisor cannot set their prices — recommended and maximum prices only. But franchising’s economics (a transferred business format, uniform identity, know-how requiring protection) justify restrictions the block exemption and case law accept readily: non-compete obligations during the term and, within limits, for a period after; obligations to source from designated suppliers where necessary to preserve common identity and quality; location clauses; and detailed operating standards.

The classic tension is supply tying: franchisors often require purchase of goods from themselves or nominated suppliers, which is defensible where genuinely necessary for quality and identity, but drifts into unjustified tying where it extends to generic inputs available on competitive terms elsewhere. National authorities in France, Spain and Türkiye have all examined franchise supply obligations on these lines. The second recurring issue is post-term non-competes, which the block exemption permits only where limited to the premises, indispensable to protect know-how, and capped at one year. Franchise agreements drafted decades ago routinely breach both.

What about dual-role and hybrid structures?

They are the modern problem. A supplier that both sells directly and appoints agents; a platform that intermediates third-party sellers while selling its own goods; a franchisor operating company-owned outlets alongside franchised ones — each creates a structure where the principal competes with, or holds sensitive data about, the very businesses it directs. The 2022 rules addressed the information dimension for dual distribution: exchange between supplier and distributor is covered only where directly related to implementing the agreement and necessary to improve production or distribution, which excludes sharing that functions as competitor intelligence.

For hybrid platforms the DMA went further, prohibiting gatekeepers from using business users’ non-public data to compete with them — the Amazon Marketplace theory turned into a standing rule, as our DMA guide explains. The design principle that follows for any dual-role business: build informational and decisional separation between the intermediation/agency function and the competing commercial arm, and document it. Structures that cannot show that separation invite both vertical-agreement and abuse analysis simultaneously.

What competition risks are specific to franchise networks?

Three beyond the vertical basics. Horizontal information flows: franchisee associations and area meetings put independent businesses that compete with each other in one room, discussing pricing and local strategy — a competitor-contact risk franchisors must govern, not host passively. No-poach clauses: agreements among franchisees, or imposed by the franchisor, not to hire each other’s staff have been prosecuted as labour-market restraints in the US and examined in Europe and Türkiye — historically standard clauses that now need removal.

Territorial exclusivity enforcement: protecting a franchisee’s catchment area against another franchisee’s active marketing is permissible, but preventing customers travelling or ordering across territories is not. Franchise systems built decades ago frequently contain all three problems; a network-wide legal review is one of the higher-return compliance exercises available to any franchisor with an ageing agreement base.

How should a company choose between distribution, agency and franchising?

By what it actually needs to control, and what risk it is willing to carry. If uniform end-pricing is essential — regulated products, yield-managed services, tightly positioned brands — genuine agency is the only lawful route, and it requires the principal to take back stock, credit and investment risk in substance. If the priority is network standards and brand identity with independent capital, franchising fits, accepting that prices can only be recommended.

If the priority is reach with minimal capital and pricing freedom is acceptable, ordinary distribution inside the block exemption is simplest and safest. The failure mode across all three is hybridisation by drift: a distribution network with agency-like price control, or a franchise with reseller economics and franchise obligations. Choose the model deliberately, paper it consistently, and revisit it when the economics change — because the legal characterisation follows the economics, whatever the contract is called.

What happens if an agency arrangement is found to be sham?

Every price instruction becomes an RPM infringement for the whole period, and the entire structure loses its exemption. The exposure compounds because agency price setting is systematic by design: unlike an opportunistic call to a discounting dealer, a sham-agency network fixes prices across every outlet continuously, which produces long durations, wide affected sales and correspondingly large fine calculations.

Agents also become claimants: independent undertakings whose pricing freedom was unlawfully removed can sue for damages, and in fuel-retail litigation across several European countries they have. Any company operating a large agency network built for pricing control should have the risk allocation stress-tested — the structure either genuinely transfers risk to the principal, or it transfers legal exposure to the principal instead.

Does the agency analysis differ outside the EU?

In emphasis rather than principle. Türkiye applies a substantively similar risk-based test through its vertical guidelines, and most EU-influenced regimes follow the same logic. US law reaches the question differently — through the Colgate doctrine and consignment cases — with somewhat more room for principals to set prices in genuine consignment arrangements. Global networks should nonetheless be built to the EU/Turkish test, since it is the strictest of the major standards and a single structure is far easier to govern than three.

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