Antitrust News: The European Commission imposes fines for the first time in 15 years as a result of online retail price restrictions (RPM)

European-Union-Online-RPM-300x225

Author: Luis Blanquez

On July 24, 2018, the European Commission fined manufacturers Asus, Denon & Marantz, Philips and Pioneer for over €111 million for restricting the ability of online retailers to set their own retail prices for a variety of widely-used consumer electronics products.

Background

The Commission’s e-commerce sector inquiry, which the Commission published in May 2017 as part of its Digital Single Market strategy, showed that resale-price related restrictions were by far the most widespread restrictions of competition in e-commerce markets in the European Union. The findings also highlighted the increased use of automatic software applied by retailers for price monitoring and price setting.

As a result of the sector inquiry, the Commission launched several investigations in February 2017 and June 2017 (one of them was this case), to assess if certain online sales practices prevented, in breach of EU antitrust rules, consumers from enjoying cross-border choice and the ability to buy products and services online at competitive prices.

The rest of these investigations are still ongoing (see here).

The Decision: Pricing algorithms and RPM strategies

According to the Commission’s Decision, Asus, Denon & Marantz, Philips and Pioneer engaged in “fixed or minimum resale price maintenance (RPM)” by restricting the ability of their online retailers to set their own retail prices for widely used consumer electronics products, such as kitchen appliances, notebooks and hi-fi products. Retailers offering their products at low prices were forced to increase their prices under threat of sanctions, such as blocking supplies.

Moreover, the use of pricing algorithms by retailers automatically adapted retail prices to those of other competitors, allowing the manufacturers to effectively track resale price setting in the distribution network and to intervene in case of price decreases.

Thus, the Commission concluded that those RPM strategies, combined with such price interventions, limited effective price competition between retailers, leading to higher prices.

Some final comments

There are two important points worth mentioning here.

First, competition authorities, including the Commission, have recently started to show particular concerns on the anticompetitive effects of certain pricing algorithms, depending on how companies decide to set them up. In this case in particular, the Commission considered that the restrictive effects of RPM strategies were exacerbated by the use of such algorithmic software. This is consistent with Competition Commissioner Margrethe Vestager’s remarks in Berlin last year during the Bundeskartellamt 18th Conference on Competition re Algorithms and Competition.

Second, similar to cartel cases under Leniency procedures, the Commission is showing that it is now open to reward companies who acknowledge their antitrust violations and offer evidence that significantly aids government investigations of anticompetitive vertical agreements. In this case, the reductions in fines for cooperation were significant: 40% for Asus, Denon & Marantz and Phillips and 50% for Pioneer.

While the Commission’s e-commerce sector investigation in the EU is ongoing, these first fines confirm that RPM is again an enforcement priority for the Commission, and that more cases are expected in the near future, at both the EU and national level.

If you are interested in learning more about the European Commission’s E-Commerce Market Study, you can read the following two articles:

The European Commission Scrutinizes the E-Commerce Market: Lessons from its Final Report

Ongoing Competition Enforcement Actions Arising Out of the European Commission’s E-Commerce Market Study