Retail Price Maintenance and the CMA
The Competition and Markets Authority has issued a Statement of Objections to a supplier of domestic lighting products. DAR Lighting Ltd was alleged to have restricted retailers from setting their own online prices between 2017 and 2019. The allegation is that the company required retailers to sell at a minimum price or above, which prevented the retailers from offering any discounts on those goods.
This is a kind of practice referred to as resale price maintenance or RPM for short. The activity is unlawful, which is why the CMA stepped in.
What is resale price maintenance?
RPM is when a supplier sets a minimum price at which other businesses can resell their product. It doesn't matter where the sale takes place, as it applies to both online and shop-based sales. A supplier can suggest a recommended retail price but is not allowed to prevent a retailer from selling at a lower price.
A recommended retail price imposed by way of threats or financial incentives can still break the law. If an agreement is in place not to sell below a minimum level, then potentially both the retailer and supplier are breaking the law.
Why is it unlawful?
Chapter 1 of the Competition Act 1998 prohibits agreements, decisions, and concerted practices that have the restriction, distortion, or prevention of competition as their object or effect.
An agreement is usually unlawful as it prevents a retailer from offering lower prices and setting prices independently to attract more customers. If a retailer refuses to maintain the prices, the supplier may stop doing business with them. The agreement prevents retailers from competing so much on price.
Some suppliers may argue that they want to keep retailers, and therefore themselves, profitable by ensuring fair returns. However, an RPM means that customers are limited in shopping around for a good deal and restricts competition.
The reasoning behind an agreement cannot make it lawful, and the CMA says it takes RPM seriously and is "focused on tackling anti-competitive practices".
What is a Statement of Objections?
A Statement of Objections is a notice of a proposed infringement decision under the Competition Act. At this stage, it is a provisional decision, and parties then have the opportunity to make representations on the matters set out in the statement of objections. The CMA then considers the representations before a final decision is made. The final decision is made by a panel of three members who are independent of the team who took the decision to issue the statement of objections.
The statement of objections is not published, but any person who wishes to comment on the CMA's provisional findings can request a version of the statement. Such a person would have to be in a position to materially assist the CMA in testing its factual, legal or economic arguments.
The Statement of Objections on this occasion is addressed to DAR Lighting Ltd as the CMA believes the company was directly involved in the alleged infringements. It has not been addressed to any retailers as permitted under rule 5(3) of the 1998 Rules. This rule says that the CMA may address a proposed infringement decision to fewer than all the persons who are or were party to the relevant agreement or agreements.
The CMA can impose a fine of up to 10% of worldwide turnover on businesses that break competition law. The CMA also says that fines can be increased if it finds that the law was broken intentionally as the business is aware that the behaviour restricts competition.
In the last two years, the CMA has fined five musical instrument companies for online RPM and three companies in other sectors.
GAK, a company in the music industry, was fined £278,945, which included a 20% discount for the companies admissions and cooperation under a settlement agreement. Korg was fined £1.5 million following admissions to restricting retailer freedom to discount the online retail prices of synthesizers and hi-tech music equipment.
Another company in the lighting sector, The National Lighting Company Ltd, was fined £2.7 million in 2017 for preventing retailers from setting their own prices and forcing them to sell at a minimum price or above. The CMA said the company tried to avoid detection by not having written agreements, and the fine included an extra penalty for failing to respond to an earlier warning letter.
The CMA has issued guidance to assist suppliers and retailers with information on RPM and what to do if they are or have been involved in similar practices. The guidance can be found on the CMA website.
How can we help?
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[Image credit "Everything must go at Woolworths 2" by Rob Greg is licensed under CC BY-ND 2.0]