Online sellers price-fixing case study
- Competition and Markets Authority
- Part of:
- Competing fairly in business: advice for small businesses
- First published:
- 7 November 2016
Lessons from the CMA's investigation into 2 online sellers who broke competition law by agreeing to fix prices.
In 2016, the Competition and Markets Authority (CMA) fined an online seller over £160,000 for breaking competition law.
The CMA found that 2 online sellers of posters, featuring popular artists such as Justin Bieber and One Direction, and frames had participated in an illegal price-fixing cartel by agreeing that they would not undercut each other’s prices for products sold on Amazon’s UK website.
The sellers used automated re-pricing software to give effect to the cartel.
How it happened
Trod Limited and GB eye Limited were competing sellers on Amazon Marketplace, an online retail platform that allows businesses to sell directly to consumers via Amazon’s UK website. GB eye also supplied posters and frames to other online retailers, including Trod which was one of GB eye’s largest online retail customers.
Trod complained to GB eye that, as a competing seller on Amazon Marketplace, GB eye was undercutting Trod on price. In one email to GB eye, Trod complained:
…you insist on pushing your retail side by trying to put your own customers out of business… this is not working and in the long term will only reduce GB Eyes [sic] profits and not improve them…(let’s) try and make this work in everyones [sic] best interests
To put an end to these complaints, GB eye and Trod agreed that they would not undercut each other’s prices. An internal email at GB eye read:
Trod…have agreed not to undercut us on Amazon and I have agreed to reciprocate. We will therefore be aiming to be the same price wherever possible, put prices up and share the sales.
The only exception was where another seller was selling the same product on Amazon at a lower price than GB eye and Trod.
To give effect to the agreement, both sellers used automated re-pricing software to monitor and adjust their prices, making sure that neither was undercutting the other. Trod and GB eye kept in contact to make sure the pricing arrangement was working and to deal with issues regarding the operation of the re-pricing software.
How did this break the law?
Agreeing with a competing business not to undercut each other’s prices is a form of cartel and is illegal under competition law. It is a type of ‘price-fixing’ which can mean that prices stay artificially high and the benefits of savings, for example those achieved through efficiency, are not passed on to customers, who end up paying more than they should.
What action was taken?
The CMA found that GB eye and Trod had broken competition law by participating in an illegal cartel not to undercut each other’s prices.
Trod admitted the breach and agreed to accept a fine of £163,371. GB eye received immunity from fines by reporting the cartel to the CMA and co-operating with the CMA’s investigation in accordance with the CMA’s leniency policy.
What are the lessons from this case?
- Competition law applies in online markets as well as sales through traditional bricks-and-mortar outlets.
- You must not agree with competing businesses not to undercut each other on price, or agree what prices you will charge for your products or services. This is a form of ‘price-fixing’ and is illegal under competition law. Sellers should set their own prices independently of their competitors. That also means that you must not discuss your pricing strategies or intentions with your competitors.
- Competition law applies to small businesses as well as large ones. The 2 online sellers in this case were small businesses, each with annual turnovers of under £16 million.
- Automated re-pricing software should not be used to give effect to illegal anti-competitive agreements. Although not a feature of this case, software providers should be aware that they can also be at risk of breaking competition law if they help their clients use software to facilitate such agreements.
- There can be serious consequences for businesses that break competition law, including fines of up to 10% of a business’s worldwide turnover. Individuals that are involved in an illegal cartel can also face personal fines, be banned from running a company and can even go to jail.
What you can do
Online sellers need to be aware of how they can breach competition law and to ensure they stay on the right side of it. Here are some of the things you can do:
- Ensure all staff know what they can and can’t do, including in particular the sorts of things which they should not discuss with competing sellers. The CMA has a range of short and simple guides to help.
- If you think you and your business have been involved in an illegal cartel, you should notify the CMA as soon as possible – you may benefit from lenient treatment by being the first to come forward to the CMA.
- Seek independent legal advice.
Any business selling products or services online depends on its reputation and the trust of its customers to succeed. Sellers using online marketplaces such as Amazon or eBay, or their own websites should therefore ensure they learn about and comply with competition law.
If you have information on other businesses you think may not be playing fair and are engaged in price-fixing or other cartel or anti-competitive behaviour, report this to the CMA’s cartels hotline by emailing firstname.lastname@example.org or by phone on 020 3738 6888.
Published: 7 November 2016