This post is also available in: Español
On July 24, 2018, the European Commission (EC) sanctioned Asus, Denon & Marantz (“D&M”), Philips and Pioneer with a total joint fine of €111 million for imposing minimum and fixed resale prices on online distributors for their electronic products (for more information, see the blog post of July 26, 2018).
The EC published the four decisions on September 26. These decisions specify the mechanisms the four manufacturers used to fix the resale prices for their online distributors. This is the first time in the last 15 years that the EC has imposed a sanction for the fixing of resale prices, as it has preferred to leave the implementation of the competition regulations to vertical agreements in the hands of national competition authorities.
In recent years, the EC has focused on the online sector. An example of this was its sector investigation on ecommerce. The final report of May 2017 showed that restrictions in resale prices were most frequent in the online sales market. A total of 42% of participants claimed that they were affected by price restrictions (these restrictions also include practices usually allowed, including the recommendation of resale prices or the imposition of maximum resale prices). As a result, the EC started an investigation of four manufacturers for possible restrictive practices imposed on their online distributors: Asus, D&M, Philips and Pioneer.
“Certain business practices in the ecommerce markets can restrict competition by unduly limiting the way in which products are distributed across the EU.”
(M. Vestager, EU Competition Commissioner, May 10, 2017)
Considering that last year the EC launched other investigations for alleged anti-competition practices in online distribution in the video game, hotel, clothes, accessories and merchandising sectors (for more information on these investigations, see the post of June 19, 2017 and the EC’s communication of February 2, 2017), it seems prudent to assume that vertical restrictions in this sector have entered the EC’s priorities.
In this case, the conduct of Asus, D&M, Philips and Pioneer mainly affected those online distributors that sold their products at a lower price than that recommended by manufacturers. As the decisions explain, those distributors that did not apply the resale prices recommended by the manufacturers (the “RRPs”) received threats and sanctions, such as denial of service.
According to the EC, the manufacturers used very sophisticated mechanisms to monitor resale prices, enabling them to quickly intervene in the event of a price reduction.
In the case of Asus, the company monitored resale prices through various mechanisms: it monitored price comparison websites, used an internal software with monitoring tools to identify those distributors that sold Asus products at a lower price than that intended by the brand, and received information through complaints from its distributors that informed Asus of other distributors’ failure to comply with the prices.
According to the decision, D&M monitored its distributors’ resale prices through price comparison websites, and sales agents contacted distributors that did not comply with the RRP to ensure that they adjusted the price. In particular, in Germany, in addition to specifying the RRP for distributors, D&M would sometimes send price lists to its distributors, which were called “street prices,” updating the prices of some products and giving instructions regarding specific products whose resale prices were thought to be too low. Consequently, distributors adjusted their prices. The list specified the date and time when the changes were to be made. Sales agents also made specific requirements, verbally and in writing, of non-compliant distributors, threatening to deny supply if they did not comply with the RRP.
Philips monitored and directly contacted distributors that did not comply with the RRP or acted after receiving complaints from other distributors that did apply the RRPs, threatening to end commercial relations with them if they did not adjust their prices.
In the case of Pioneer, in addition to monitoring and intervening regarding distributors’ prices, Pioneer tried to prevent parallel imports, thus preventing distributors with lower prices from selling outside their territory and generating an unstable price market in the target territories. As in the other cases, Pioneer directly contacted the “problematic” distributors to agree a price increase with them. In some cases, the date and time when the price was to be changed was given, specifying that these distributors’ conduct would be in line with that of the other distributors in the same Member State.
A crucial factor in these four decisions is the key role played by the algorithms used by the online distributors to set their prices at the lowest market level. “Spider” software, used by many distributors, would track their competitors’ online prices and automatically adjust their prices to those of the competitors with the lowest price. The four manufacturers argued that it was these mechanisms used by distributors that made them consider that it was necessary to intervene regarding prices, thus preventing general price erosion in the market.
Given the cooperation by the four affected companies during the EC’s investigation, Pioneer’s fine was decreased by 50%, and the other manufacturers’ fines by 40%.
The outcome of this unprecedented case highlights the EC’s special interest in practices that restrict competition in ecommerce and the fact that they are a priority in the current EC agenda.
This post is also available in: Español