The European Commission has fined four consumer electronics manufacturers a total of €111 million for putting pressure on online retailers to maintain higher prices (a form of so-called resale price maintenance or RPM) in breach of EU competition law. The manufacturers used sophisticated monitoring tools allowing them to track retail prices for their products. Retailers who offered their products at low prices were forced to increase their prices under threat of sanctions, including blocking supplies. The EC’s press release is here.
These decisions are of interest for three reasons:
(i) Fines for resale price maintenance are rare
Vertical restrictions, including RPM, have not traditionally been an enforcement priority for the EC. Although RPM is considered by the EC to be a “hardcore restriction” of competition, there have been relatively few decisions at EU level to date. The most recent EC fine for RPM was in the case of Yamaha and dates back to 2003.
The decisions signal an increased interest by the EC in vertical restrictions, in particular in online markets. This change in focus comes in light of the EC’s Digital Single Market agenda and the related E-commerce Sector Inquiry. In its E-commerce report of May 2017, the EC identified a number of business practices that may restrict competition in the sector, including online pricing of consumer goods. Two other investigations, one into geo-blocking practices and the other into price discrimination in the tourism sector, were opened in February 2017 and are still on-going.
We expect more investigations by the EC in the online sector in the future.
(ii) Taking account of the effect of algorithms
Second, the practices which are the subject of these decisions concern pricing algorithms. Although the EC did not raise issues with the use of the algorithms in general, it considered that the effects of the restrictive practices were exacerbated by the use of algorithmic software by the retailers that adjusts retail based on the prices of competitors. Since the manufacturers targeted low price retailers and forced them to maintain higher prices, the pricing algorithms used by other retailers based their pricing decisions on an artificial “lowest price”.
In recent years, competition authorities have been focusing on the use of algorithms as a means to facilitate anti-competitive conduct, but there is no real consensus on how to treat algorithms in this context (see item 5/ page 7 of our recent Enforcement publication). The present cases demonstrate that the EC is increasing its understanding of algorithms and punishing anti-competitive behaviour that is strengthened by their use.
Lastly, the present decisions are noteworthy because the EC gave reductions in fines to all four companies for cooperation by providing evidence with significant added value and by acknowledging the infringements. The reductions in fines were 40% for Asus, Denon & Marantz and Phillips and 50% for Pioneer.
For businesses, this confirms that the EC is willing to reward co-operation across all types of antitrust infringements.
The full text of the EC’s decisions will be published later this year and will provide further background on the relevant facts and assessment.