Price fixing online – a new competition authority warning
The UK's Competition and Markets Authority ("CMA") has released an open letter to suppliers and retailers warning against online practices which constitute price fixing
This letter follows two recent investigations by the CMA into arrangements where suppliers restricted the retailers’ ability to set their own prices for the products (bathroom fittings and commercial catering equipment, respectively) which they sold online. In these two cases, the CMA ultimately imposed significant fines, but only on the suppliers. However, as the CMA has made clear, going forward, it may fine retailers as well as suppliers for being involved in such anti-competitive practices.
The CMA has increased its focus on vertical arrangements. At a European level, the European Commission is conducting an inquiry into the e-commerce sector to identify possible competition concerns, particularly in respect of cross-border online trade. Against this climate, online businesses can expect increasing scrutiny over their commercial dealings which fall foul of competition law.
What is resale price maintenance?
Resale price maintenance (RPM) is a type of price fixing arrangement which occurs, for example, when a retailer and supplier agree that the retailer will only sell or advertise the supplier's products to customers at a particular price or above a certain minimum price. RPM can also occur indirectly in situations such as where the retailer is prohibited from discounting below a certain level or where the retailer is incentivised to make sales at a certain price. Retailers may sometimes face threats from suppliers of higher prices being imposed or supplies being withheld, if certain prices are not achieved (as occurred in the cases mentioned above). An RPM arrangement may be agreed in writing or verbally.
RPM prevents retailers from independently determining their prices and potentially offering lower prices to their customers. This could prevent consumers from obtaining the full benefit of the online marketplace and reduces the effectiveness of being able to "shop around" to obtain the best price more easily than in traditional bricks and mortar shopping channels.
RPM is relevant to other vertical relationships as well as the supplier and retailer scenario. The same principles apply to an arrangement between a supplier and its distributors. Its distributors must be free to set the prices at which they resell the relevant products.
RPM is recognised as generally being anti-competitive and, thus, an illegal practice under both UK and EU competition law (under the UK Competition Act's Chapter I prohibition and under Article 101 of the Treaty on the Functioning of the European Union respectively).
What are the implications for Recommended Retail Prices?
The prohibition on RPM does not mean that suppliers cannot suggest Recommended Retail Prices (RRPs). Any RRP must only be just that, a recommendation, and the retailer must remain free to determine independently the price at which it resells the products to its customers.
Can a supplier legitimately control pricing?
The restrictions on RPM will not apply to an arrangement where a supplier appoints an agent rather than a distributor to sell goods on its behalf. However, care always needs to be taken when appointing an agent to ensure that, from a competition law perspective, it is a genuine agency arrangement so that the supplier may determine the prices at which the agent sells the products.
What are the penalties for infringement?
The CMA can impose fines on both retailers and suppliers, if it finds that the parties have violated competition law by agreeing to fix the retail prices. The parties risk a fine of up to 10% of their business's worldwide turnover.
RPM fines have also been imposed in other Member States and by the European Commission. Earlier this year Hewlett Packard was fined in Austria for agreeing to set product prices with retailers both in stores and online. Swatch and four of its distributors were also fined 500,000 euros in Poland in December 2015 for agreeing minimum retail prices for a range of watches sold in stores and online.
Key things to remember when considering online pricing arrangements:
The CMA has published useful guidance notes, case studies and even videos to help businesses to understand RPM (and competition law compliance more generally).
The key points to note about RPM are as follows:
suppliers must not dictate the specific price or a minimum price at which products are sold by the retailers, whether online, in store or otherwise;
suppliers should not insist on a minimum advertised price for online sales;
while it is legal for a supplier to recommend a retail price, a retailer must have the discretion to decide its own retail price for its customers and a supplier must not take any steps to enforce an RRP;
actions, such as offering financial incentives or making threats (of withholding supply or offering less favourable terms, for example) in order to force the retailer to maintain certain resale prices are likely to equate to RPM; and
if the retailer and supplier agree to sell products at a fixed or minimum price, both parties may be found to be breaking competition law and each could be liable for a significant fine.