Dealing with suppliers and distributors
SMEs are unlikely to infringe competition law in their agreements with suppliers or distributors, except in cases of “Resale Price Maintenance” (RPM).
What is RPM?
RPM occurs when suppliers require their distributors (including retailers) to sell their products at a certain price or not to sell them below a certain price.
How does RPM operate?
RPM could be conducted directly or indirectly by suppliers. For instance, suppliers could conduct RPM directly by:
- fixing the resale price; or
- setting a minimum resale price.
Suppliers could also indirectly conduct RPM, for instance, by:
- fixing the distributors’ margin; or
- fixing the maximum discount the distributor may grant from a set price level.
Suppliers may enforce RPM through various means, including but not limited to:
- offering incentives (e.g., rebates and reimbursements of promotional costs); or
- pressuring distributors with threats, intimidation, warnings, penalties, delays in or outright suspension of product supply.
Occasionally, distributors may pressure suppliers into implementing RPM to limit price competition at the distributor level.
What harm does RPM cause?
The most obvious harm is that competition on price among distributors may be substantially reduced, likely resulting in consumers facing higher prices.
RPM may also prevent the emergence of new distributors. If resale prices are fixed by the supplier, potential distributors or retailers will not be able to enter the market by offering discounts.
Can suppliers set recommended or maximum prices?
Suppliers merely “recommending” resale prices or setting maximum resale prices of their products are less likely to raise competition concerns if they are truly providing recommendations only and distributors can freely adjust their prices to compete with one another.
However, when a so-called recommended or maximum resale price is combined with measures that effectively require the distributors to adhere to that recommendation, it may be considered as a form of RPM.
How to assess a potentially anti-competitive RPM agreement?
In assessing whether an agreement is anti-competitive, the Commission will consider:
- the content of the arrangement establishing the RPM,
- how it is implemented, and
- the relevant legal and economic context.