The European Commission launched an inquiry into the e-commerce sector as part of its Digital Single Market strategy. Initial findings were published last week in a Preliminary Report. The inquiry focused on e-commerce in two areas: goods and digital content. Responses were received from retailers, manufacturers, marketplaces, price comparison tools and payment systems providers across a range of sectors. In this blog post, we consider the Report’s findings on goods.

Restrictions and barriers to competition

When announcing the launch of the inquiry, Commissioner Vestager was quick to emphasise the potential for further investigation in the e-commerce sector. It is no surprise then that in its Preliminary Report the Commission highlighted particular areas where restrictions could be presenting barriers to effective competition.

Cross-border sales

Cross-border sales are clearly beneficial for consumers and any restrictions which make cross-border trade more difficult will be of concern to the Commission, particularly in light of the drive for integration as it pursues its Digital Single Market strategy. In March of this year, it released a report that found geoblocking, the practice of blocking or rerouting access to websites based on a customer’s location, was widespread.

Last week’s Preliminary Report found that a little over a third of retailers used geoblocking to restrict cross-border sales online. In most cases these appeared to be unilateral decisions taken by the retailers (and therefore not, in principle, raising competition concerns). However, where geoblocking arose due to contractual restrictions imposed on retailers by suppliers and/or brand owners, the Commission has flagged the potential for competition infringements.

Distribution Strategies

As e-commerce has grown over the course of the past ten years, manufacturers and brand owners have increasingly looked to selective distribution models as they seek to maintain control over a coherent brand image. The Commission found that the majority of selective distribution arrangements reviewed included restrictions on pure online sellers for at least part of their product range. Greater scrutiny may be expected to follow to ensure that selective distribution arrangements are being used appropriately. Particular areas for concern will be attempts to impose absolute online sales bans and/or restrictions on cross-border sales.

Use of marketplaces

Manufacturers and brand owners have also looked increasingly to sell directly to consumers with over a fifth reporting sales in this way. Clothing, shoes and consumer electronics were the product categories most frequently sold directly. The Commission also found that almost 20% of retailers experienced restrictions on their use of online marketplaces, ranging from outright bans to only selling on marketplaces fulfilling set criteria.

When the Vertical Guidelines were published in 2010, restraints on marketplace sales were not considered hardcore restrictions and the indication is that this is still the Commission’s view, although it should be noted that a reference on similar issues has been made to the CJEU (we reported on this here).

Pricing

The Report found 38% of retailers had resale prices recommended by manufacturers and in some cases suppliers tracked the prices of products sold. It emphasised that attempts by suppliers to interfere with final prices which establish a minimum or fixed price will amount to anti-competitive behaviour.

Price Transparency

A key finding was that online price transparency has had a huge impact on consumers and e-commerce providers, leading to increased price competition both online and offline. This is clearly of benefit to consumers, who are able to obtain goods at the best price. On the whole, price was the key parameter of competition for retailers, whilst manufacturers saw quality and brand image as most important. There are obvious conflicting interests in this area.

Price transparency allows companies to keep a close eye on each other’s pricing - in fact 53% of retailers who responded to the inquiry tracked competitor pricing. Of the retailers that used automated software to monitor competitor pricing, almost 80% adjusted prices accordingly. The Commission noted that this has had a significant effect on pricing practices and distribution strategies of retailers and manufacturers and that certain pricing strategies may require further investigation on an individual basis.

Price comparison tools

Price comparison tools were used by over a third of retailers but received mixed views from manufacturers. Some viewed them as beneficial to business, whilst others took a more critical approach. Almost a tenth of retailers were restricted by suppliers from using price-comparison tools. It was noted that absolute restrictions could prevent retailers benefitting from additional traffic generated by price comparison tools.

Concluding thoughts

The Commission has highlighted a number of practices in its review that raise concerns and investigations may yet follow in respect of particular restrictions on online sales, as well as pricing and territorial strategies. Certainly the growth of e-commerce and the ease with which it facilitates cross-border sales has brought new challenges to manufacturers and brand owners. Equally, the Commission’s preliminary findings will no doubt be well received by those retailers with significant cross-border sales, offering as it does an opportunity to push back on certain categories of restrictions.

The Commission has invited stakeholders to submit any responses to the Preliminary Report by 18 November 2016.