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Antitrust, European Commission

Jul 30, 2018

The European Commission Fines Four Consumer Electronics Manufacturers for Fixing Online Resale Prices and Sketches the Contours of a New Fining Policy

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Introduction

The Commission’s decisions of 24 July 2018, fining Philips, Asus, Denon & Marantz and Pioneer for fixing online retail prices, inaugurates a much-awaited wave of verdicts on vertical restrictions, with the noteworthy peculiarity that they involve the use of algorithms.

Separate investigations against Philips, Asus, Denon & Marantz and Pioneer were simultaneously opened in February 2017,[1] shortly before the Final Report on the E-commerce Sector Inquiry in May 2017 warned about the likelihood that “increased price transparency allows companies to monitor more easily their prices. A majority of retailers track the online prices of competitors. Two thirds of them use automatic software programmes that adjust their own prices based on the observed prices of competitors. With pricing software, detecting deviations from ‘recommended’ retail prices takes a matter of seconds and manufacturers are increasingly able to monitor and influence retailers’ price setting. The availability of real-time pricing information may also trigger automatised price coordination. The wide-scale use of such software may in some situations, depending on the market conditions, raise competition concerns.”[2]

The decisions (or, rather, what we can infer from the Commission’s press release[3]) also contain interesting hints to a new fining policy based on significant discounts not only for cooperating, but also for admitting the infringement. This suggests that a new “hybrid procedure” has been used, apparently borrowing on the one hand from the standard mitigating circumstances under the Commission Guidelines on the method of setting fines and on the other hand from the settlement procedure commonly used for cartel cases. 

The Merits of the Decision

According to the Commission’s press release, Asus, Denon & Marantz, Philips and Pioneer engaged in so called “fixed or minimum resale price maintenance (RPM)” by restricting, in various Member States, 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. Pioneer also limited the ability of its retailers to sell cross-border to consumers in other Member States to sustain different resale prices in different Member States.

The four manufacturers intervened particularly with online retailers, who offered their products at low prices. If those retailers did not follow the prices requested by manufacturers, they faced threats or sanctions such as blocking of supplies. Many, including the biggest online retailers, used pricing algorithms which automatically adapted retail prices to those of competitors. This way, the pricing restrictions imposed on low pricing online retailers typically had a broader impact on overall online prices for the respective consumer electronics products.

Moreover, the use of monitoring tools allowed the manufacturers to effectively track resale price setting in the distribution network and to intervene promptly in case of price decreases.

According to the Commission, the price interventions limited effective price competition between retailers and led to higher prices with an immediate effect on consumers.

A couple of points are worth noting. First, the investigations appear to have been opened only against the manufacturers, not against the retailers. According to the Commission, the online retailers used pricing algorithms to adapt their retail prices to those of competitors. The use of such software by the retailers was not targeted of itself as an infringement, but it nevertheless amplified the effects of the pricing restrictions imposed by the manufacturers and was no doubt a factor prompting the Commission’s intervention. This means that manufacturers should pay a high level of attention to the pricing algorithms used by their retailers.

Second, the Commission identified as part of the infringing conduct the manufacturers’ use of software tracking tools to identify price decreases. Such software is not of itself illegal but companies’ compliance programmes will need to take into account the risk that such software may create suspicions that it is being used to help enforce a resale price maintenance scheme.

The Settlement

At a procedural level, the decision appears to confirm a Commission policy shift to apply cartel leniency principles so as to make fine reductions available for other types of infringements when companies co-operate and admit the infringement.

The press release clearly states that the generous discounts (of 40% and 50%) have been granted to the companies for cooperating with the Commission “by providing evidence with significant added value and by expressly acknowledging the facts and the infringements of EU antitrust rules”.

This is a welcome development.  It will help companies manage their exposures when problematic conduct is identified and help the Commission close investigations more quickly and efficiently—which will be important for the considerable backlog of cases that the Commission has created for itself in the last year, when opening investigations on merchandising products,[4] clothing,[5] videogames and hotel prices.[6]

 

Authors and Contributors

Matthew Readings

Partner

Antitrust

+44 20 7655 5937

+44 20 7655 5937

+32 2 500 9866

+32 2 500 9866

London