On 18 September 2012, the French Competition Authority published its Opinion No. 12-A-20 on the competitive functioning of the e-commerce sector. In view of the rapid growth of this sector, the Authority had launched, on its own motion, a sector inquiry in 2011 to examine the sector. The Opinion reports on the findings of this sector inquiry.

The Authority focused on three well-known economic sectors: electrical domestic appliances (TVs, sound systems, washing machines, computers, cameras, etc.), cosmetic and personal care products, and luxury perfume and beauty products.

E-commerce is a key driver of competition

According to the Authority, the development of e-commerce can enable consumers to benefit from lower prices. Indeed, it notes that, in general, online prices, even when shipping costs are factored in, are lower than offline prices, although there is some heterogeneity of price differences between sectors. This can be explained by the fact that the online distribution costs are less important than those of the traditional retailers. Indeed, if the pure players have strong constraints in terms of logistics costs and marketing support, they still have more reduced costs due to the absence of physical retail outlets.

Apart from the price, the competitive pressure of the Internet channel also comes from the fact that this channel offers a wide range of products. E-commerce operators can easily offer a large number of references, without encountering the same physical constraints as traditional distributors.

The Authority also observes that new online actors contribute to promote competition on the market.

Among these new actors, marketplaces can enhance competition by reducing online barriers to entry - including lack of reputation - and by supporting the expansion of the references offered for online sales and price comparison. However, the Authority states that the development of such marketplaces can also raise competition concerns inherent to their functioning, in particular where the undertaking that operates the marketplace and decides the distributors’ referencing is also a competitor of these distributors and/or where the marketplace is dominant. Undertakings must thus ensure that the marketplaces do not lead to agreements on prices between dealers, to anticompetitive exchanges of information or to discriminatory practices.

Besides marketplaces, price comparators are also a way to increase the competitive pressure exerted by e-commerce. According to the Authority, price comparison can raise concerns but these are more relating to consumer law than to competition law (e.g. disloyalty of information provided to consumers, terms of referencing, etc.).

Despite the competitive pressure that e-commerce places on traditional commerce, both channels remain imperfectly substitutable

According to the Authority, although the situation may vary from one sector to another, from both the demand and the supply sides, the online sales channel and the traditional distribution channel converge but are not substitutable to the extent that they can be considered to be on the same market.

The Authority observes that each distribution channel has various advantages and disadvantages and meets the different needs of consumers. In physical outlets, consumers expect a service, advice and the opportunity to get the product immediately, whereas, online, they are motivated above all by the price, and can neither test the product nor get it immediately.

However, the Authority notes that the development of a larger range of products on the internet shows an increasing convergence of channels that can ultimately lead consumers to consider the two channels as a single market.

The Authority recalls that the conditions imposed on online sales should not hinder their development, in particular by preventing the deployment of pure players

The Authority examines practices consisting in imposing different prices and supply terms and conditions on on-line and off-line retailers. It concludes that, by encouraging price competition among distributors and/or encouraging them to offer services valued by manufacturers and by consumers, such price differentiation can be beneficial for economic efficiency and therefore cannot, as such, be regarded as anticompetitive. However, there is a risk that the discriminatory price reductions or delivery conditions granted to certain distributors result in the abuse of dominance or anticompetitive agreements. Such practices could occur in particular where the weight of the manufacturer and/or distributor on their respective market and the attractiveness of the products in question are so high that discrimination is likely to distort competition, and in particular to hinder the development of pure players. Such practices could then be prohibited.

Concerning selective distribution, the Authority recalls the well-established principles of analysis but does not exclude that the implementation of such distribution networks can restrict competition

The Authority states that the development of selective distribution networks, by submitting online distributors to a number of requirements, in particular the operation of a physical retail outlet, compliance with certain quality standards or reporting of online sales information, is likely to hinder the development of e-commerce.

In this regard, the Authority recalls that the caselaw, endorsed by the guidelines on vertical restraints of 2010, recognizes the right for the manufacturers to require the operation of a physical retail outlet. However, according to these guidelines, this ability can be questioned when the resulting restriction on the distribution undermines competition on the market.

Where this condition of operating a physical retail outlet would be likely to restrict competition, justifications should be assessed according to the characteristics of the product in question. In this regard, there could be taken into account the necessity of the different services provided by physical outlets throughout the network and the risk of parasitism associated with them, but also factors related to online sales sites such as the presentation of products, the existence of telephone advice, etc.

Regarding pure players, the Authority shows for the first time openness to their inclusion in a selective distribution network, noting that they are likely to make investments that benefit the entire selective distribution network since some internet users prepare their purchases online before buying in-store.

Finally, and contrary to other opinions issued within the framework of sector inquiries, it is worth noting that the Competition Authority has not identified major competition concerns in the e-commerce sector.