Resale price maintenance case studies
- Competition and Markets Authority
- Part of:
- Resale price maintenance: information for businesses and Competition Act and cartels
- 21 June 2016
Lessons from the Competition and Markets Authority’s (CMA) catering equipment and bathroom fittings enforcement cases.
In 2016, the CMA found that 2 businesses, one supplying commercial catering equipment and the other supplying bathroom fittings, had broken competition law by engaging in resale price maintenance (RPM).
RPM is where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a particular price. RPM can also be achieved indirectly, for example as a result of restrictions on discounting or where there are threats or financial incentives to sell at a particular price. You can find out more about RPM by watching our short film.
In May 2016, the CMA fined a supplier of commercial refrigeration equipment over £2 million and a bathroom fittings manufacturer over £780,000 for breaking competition law.
In the commercial catering equipment case, the supplier imposed a ‘minimum advertised price’ (MAP) policy that restricted the price at which retailers could advertise the supplier’s product online. It enforced this MAP policy by threatening to charge dealers higher cost prices for products, or stopping supply altogether, if they advertised below the minimum price. For example, an email read:
Whilst researching online pricing I can see a number of products which are listed below the minimum advertised price…
Unfortunately by not adhering to the policy and attached minimum advertised pricing we shall no longer be able to process any order received at standard discount terms.
In the bathroom fittings case, the manufacturer threatened retailers with penalties for not pricing at or above a ‘recommended’ online price as set out in ‘online trading guidelines’. Enforcement threats included charging retailers higher prices for products, withdrawing rights to use the supplier’s images online or withholding supply of products. For example, an email read:
…our online trading guidelines have come into effect today and it has been reported that your site is not compliant with them…if we can’t bring your site in line by close of business on 2/2/12 we will have to put your account on ‘stop’.
We…would appreciate it if someone contacts [‘Marketing Executive’]…to give him some assurances that you will have correct pricing by tomorrow evening.
How did this break the law?
The CMA found that preventing retailers from advertising or selling products online below a certain price restricted their freedom to set the price for online sales and, therefore, amounted to illegal RPM in relation to online sales.
What action was taken?
In May 2016, the CMA imposed a fine of over £2 million on the supplier in the commercial catering case, and over £780,000 on the manufacturer in the bathrooms case.
The suppliers’ fines were each reduced by 5 to 10% for setting up a comprehensive competition law compliance programme that included staff training. Each supplier also benefited from a 20% fine reduction because it admitted breaking the law and fully co-operated with the CMA under a settlement agreement.
What are the lessons from these cases?
Suppliers must not take any action that interferes with a retailer’s ability to set their own price of the supplier’s goods online or through other channels. Any attempt to do so is likely to be illegal.
The principles of competition law apply to all sectors, including online retail – the CMA is keeping an active watch on potential RPM agreements in the online space and is prepared to take action against firms breaking the law.
Any agreement, be it verbal or in writing, is equally liable to CMA investigation and enforcement. You can’t get around the law by taking agreements ‘offline’.
The consequences of breaking competition law can be severe: fines can be as much as 10% of a business’ global turnover and directors can be banned from running a company for up to 15 years. In the most serious cases involving price-fixing between competitors, individuals can go to prison for up to 5 years.
What you can do
These cases show that it’s important for suppliers and retailers to review their practices around discounting and pricing policies so they don’t risk entering into illegal agreements. Some of the ways to do this are to:
Create a culture of compliance – everyone in your business must understand what they need to do to stay on the right side of competition law.
If you have information on other companies in your industry that may have been involved in an anti-competitive arrangement, report it to us or call us on 020 3738 6888.
If you think your business has been involved in RPM, 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.
We also recommend that you seek independent, legal advice.
Published: 21 June 2016