Fixed or minimum prices are considered by the Competition and Markets Authority (CMA) to be the most serious form of anti-competitive behaviour.
However, the CMA recognises that in certain circumstances even anti-competitive agreements can produce efficiency gains which benefit consumers. As a result, even if an agreement between two businesses is, on the face of it, anti-competitive, there is a limited possibility of exemption as follows:
- New products – Where a new product is being launched by a supplier, it may be the case that fixed prices are instrumental in persuading distributors to promote the new product, so expanding demand for the products and contributing to making the launch of the product a success, for the benefit of consumers. However, a supplier will only be able to rely on this argument where it can show that it was not practical to impose contractual obligations on its distributors to promote the new product. This may be difficult to establish, given that most well-drafted distribution agreements are likely to contain obligations to promote the supplier’s products.
- Improved quality of service – Resale price maintenance may also be permissible where suppliers of experience products (products where consumers have difficulties in choosing what to buy due to difficulties in assessing quality until after purchase) are using it to prevent distributors who offer consumers no pre-sales services from taking advantage of the pre-sales services provided by other distributors. If only some distributors provide pre-sales services to consumers, and consumers take advantage of those services in making their decision to purchase the product, but then decide to buy from a distributor who does not offer pre-sales services and therefore offers the product at a lower price, then eventually high-service distributors would stop providing the pre-sales services. The EU Commission recognises that pre-sales services benefit consumers of experience products (by enabling them to make an informed choice about what to buy), and enhance demand for the product.
- Franchises – An agreement to fix prices may fulfil the criteria for exemption where the supplier has fixed prices as part of a coordinated short-term low price campaign. The EU Commission in its guidelines on restraints imposed by suppliers on distributors states that “short term” means 2 to 6 weeks, so a supplier will not be able to rely on this exemption for resale price maintenance which has taken placed over a long period of time.
As can be seen from each of the above examples, the situations in which resale price maintenance is permitted are very limited, and will depend upon being able to show that the minimum or fixed prices were the only way in which the supplier could realistically achieve the particular outcome. But it is notoriously difficult for a supplier or distributor to be able to justify fixed or minimum prices. To stand any chance of being able to do so, not only is it necessary to come within one of the above classes but also the agreement must fulfil all of the following conditions:
- it contributes to improving production or distribution, or to promoting technical or economic progress;
- it allows consumers a fair share of the resulting benefit;
- it only imposes restrictions which are indispensable to the achievement of those objectives; and
- it does not allow the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
Many suppliers and distributors are already involved in agreements or understandings which involve illegal resale price maintenance. For the parties to such agreements, the way forward is to consider taking advantage of the CMA’s leniency programme by whistleblowing. And for future agreements, the cost of being caught should outweigh any desire to fix prices illegally.