FROM GERMANY with…RPM GUIDANCE NOTE

On 25 January 2017 the German Competition Authority (Cartel Office/Bundeskartellamt) released its Guidance note on the prohibition of vertical price fixing in the brick-and-mortar food retail sector outlining its views on resale price maintenance (“Guidelines”). [1] The document is open to public consultations until 10 March 2017, following which the final version of the Guidelines will be adopted. Guidelines are already useful in terms of understanding the Cartel Office’s approach to vertical agreements, particularly in relation to minimum price fixing, recommended resale prices, quantity management/promotion management, termination of and refusal to engage in business relations, and data exchanges between retailors and suppliers in the food retail market.

The Guidelines is helpful for compliance measures, also for companies active in Turkey, since Turkish competition law, just as the German competition law, follow the EU competition rules. Below we provide highlights of the main provisions extracted from the text of the Guidelines. A subsequent update will follow once the final version of the Guidelines is published.

Vertical price fixing

  • Vertical price fixing is prohibited both under the German and European law.
  • Establishment of a fixed resale price to be observed by the buyer is a hardcore restriction, not covered by the block exemption, and is only exemptible in individually justified cases.
  • The size of the market shares held by the participating companies is irrelevant for the assessment. It is an appreciable effect on competition is what matters. Other important aspects are the degree to which suppliers and retailers are interconnected through a web of purchase and supply agreements, and the extent to which vertical price fixing is used in the market affected.

Justification of price fixing

  • Vertical price fixing could possibly be justified on the basis of these criteria in the following three case scenarios in particular: (i) market launch of new products, (ii) short-term low price campaigns in a franchise system or similar distribution system and, (iii) in order to avoid the free-riding problem, in the case of complex products for which retailers provide intensive pre-sales services.
  • Whether vertical price fixing generates efficiencies also depends on the product concerned: The more pre-sale services a product requires, the more convincing the argument that consumers benefit. If, however, the product concerned is a “standard product”, the efficiency argument can be rejected straight away
  • There is little evidence of efficiencies generated by vertical price fixing in the sector. Food is a standard product that usually does not require any pre-sale advice. There is limited scope for the development and launch of new, innovative products.

Use of threat and/or incentives

  • Suppliers are prohibited from threatening retailers and causing disadvantages or promising or granting advantages to other companies in order to induce them to engage in RPM.
  • The fact that pressure is used or incentives are given demonstrates that the supplier has exercised anti-competitive influence on the retailer’s decision-making process and thus violated law. The retailer also violated competition law because it ultimately agreed to the suggested price fixing practice and thus concluded an anti-competitive agreement with the supplier.
  • The retailer can avoid a violation of the law by opposing the attempted influence, pointing out the legal situation and, if necessary, by contacting the competition authorities, or at least documenting these threats (so that in possibly subsequent antitrust proceedings this would enable the retailer to prove that it was not the initiator of the price fixing practice). This fact can be taken into account in favour of the retailer, even though it formally participated in the infringement along with the supplier.

Recommended resale prices

  • Suppliers are, in general, free to explain their opinion as long as this does not put in doubt the non-binding character of their recommendation, and as long as they do not provide retailers with additional information that is intended to influence their decisions in an anti-competitive way, i.e. inducing the retailers to adhere to the RRP. The retailer is well advised to avoid making comments to the supplier which could give the impression that the retailer intends to adhere to the RRP.

Quantity management/promotion management

  • If the supplier is not only informed of the quantities needed but also of the designated promotional retail price, this can, raise competition concerns. If the retailer, while placing the order, indicates its designated promotional retail price, and if this price is in line with the supplier’s price recommendations, the experience suggests that this is in fact a promise to observe the supplier’s recommended prices. Retailers should therefore refrain from informing their suppliers in advance of their designated promotional prices to prevent any intervention by the supplier in the first place.
  • Suppliers, in turn, are advised not to oblige their retailers to inform them in advance of designated promotional prices as this gives grounds for suspicion that they intend to influence the retailer’s promotional price. If a retailer, in fulfilment of such obligation, quotes its promotional price in advance, this quotation can usually no longer be considered non-committal.

Termination of and refusal to engage in business relations

  • A supplier’s decision not to engage in a supply relationship with a retailer does not raise competition concerns as long as the supplier takes this decision autonomously and keeps quiet about the reasons behind it. If the supplier makes it clear, however, that it has decided to terminate an existing business relationship with a retailer on account of that retailer’s pricing policy, this can be seen as an attempt to exert pressure on the retailer to change its retail prices, which in itself is anticompetitive.

Data exchange between retailers and suppliers

  • The data may not be used to coordinate pricing strategies, either between the retailer and the supplier, or between retailers with the supplier acting as a mediator, or between suppliers with the retailer acting as a mediator. The provision of data relating to the future (such as a designated promotional price) is therefore subject to the limitations. It cannot be used to monitor the retail prices of a retailer in order to assess whether the retailer adheres to a vertical price-fixing agreement.

 

For more information: info@actecon.com

[1] http://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Diskussions_Hintergrundpapiere/2016/Consultation_Guidance_note_prohibition_vertical_price_fixing_brickand_mortar_food_retail.pdf?__blob=publicationFile&v=8

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