Introduction
Competition risk caused by pricing
Price recommendations
Intent to restrict prices?


Introduction

The Federal Cartel Office (FCO) has been examining the food retail sector pricing system for some time. Its focus is on manufacturers which make this issue the subject of annual meetings, or coordinate sales promotions or the introduction of new products.

The trade sector, especially when introducing new products, often refers to manufacturers to enquire about non-binding price recommendations, because there is a lack of empirical values to demonstrate how the product should be launched on the market in terms of price.

Competition risk caused by pricing

The FCO is critical of any cooperation between trade and manufacturers if it is associated with a potential competition risk in relation to pricing. At the 46th FIW Innsbruck Symposium (a research institute for economic competition), an FCO director acknowledged that there is a need to discuss pricing between trade enterprises and manufacturers generally, due mainly to the special supplier-manufacturer relationship. The manufacturer may have better insight into the market regarding product prices that are likely to be accepted by consumers. It also has an overview of production costs and revenue for a particular product, especially for a new product launch.

Price recommendations

As unilateral, non-binding price recommendations are permissible, merely handing over a list of recommendations for resale prices to an enquiring trading enterprise is not objectionable under competition law. In addition, the manufacturer can explain the reasons for the price recommendation and strategy with regard to the positioning and launch of the product on the market. However, according to the FCO, the provision of calculation aids or instructions for establishing the sales price which contain given variables may be problematic under competition law.

Generally, it is crucial that a trading enterprise decides independently whether to adopt the manufacturer's recommended sales price. The FCO considers price recommendations as (factually) binding in a broad sense, but this often fails to take into consideration the actual (and sometimes difficult) process of negotiating product sales with trading enterprises.

Intent to restrict prices?

According to the FCO, if the manufacturer does more than just give a single, unilateral non-binding price recommendation, this can raise suspicions about price fixing and lead to an assumption that price restrictions are intended. It is argued that follow-up contact which puts pressure on the dealer to implement the price recommendation will result in the subsequent conversion of the recommendation into a fixed price. This recently happened when an employee of a rucksack manufacturer contacted a dealer by telephone and said that he could not understand the economic aspects on which the dealer had based its price calculation for the manufacturer's rucksacks(1) (for further details please see "What constitutes illicit pressure in order to enforce resale price maintenance?"). In Cibavision,(2) a manufacturer which had systematically monitored the retail prices of its products and contacted online dealers whose prices fell below the desired price level in order to discuss pricing with them was considered to have behaved objectionably.

This demonstrates that the communication between manufacturers and trading enterprises regarding price recommendations is seen as problematic by the FCO, even though there is a need for such communication. Whether such circumstances may lead to questionable price fixing must be determined on a case-by-case basis.

For further information on this topic please contact Antje Gruneberg at CMS Hasche Sigle by telephone (+32 2 6500 420), fax (+32 2 6500 422) or email (antje.gruneberg@cms-hs.com).

Endnotes

(1) Federal High Court, November 16 2012, KZR 13/12.

(2) September 25 2009, 83 123/08.

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