The existence of effective competition between companies constitutes one of the principle elements of the market economy.
It is tempting to think that the complete absence of regulation regarding competition would be the best solution in order to guarantee a pure system of free competition. However, free competition in its extremity may cause conduct, which paradoxically, has the opposite effect. It is for this reason that in the European market said area has been regulated by the Treaty on Functioning of the European Union, under which any conduct, which may distort competition, has been prohibited.
In order to determine whether pricing strategies between the manufacturer and distributor constitute conduct which is contrary to competition laws or not, the difference between the following types of agreement must be taken into account:
- Fixing a determined resale price.
- Fixing a minimum resale price.
- Fixing a maximum resale price.
- Recommendation of a determined resale price.
As a general rule, the four points mentioned above distort competition in the market and therefore are prohibited in the European Union. This is without prejudice to unfair conduct implied when a product is sold by a distributor at a price lower than that paid for acquisition, that is to say, selling at a loss.
As an exception to the abovementioned general rule, the Regulation 330/2010 establishes that the fixing of a maximum resale price as well as the recommendation of a determined resale price are acceptable providing that the both the distributor and the manufacturer do not achieve a market share of 30% in their respective markets.
This exception means that both the fixing of a maximum resale price as well as the recommendation of a determined resale price may improve the financial efficiency of a distribution chain, by allowing a reduction of the transaction and distribution costs of both parties, as well as the optimisation of sales and investment levels.
The Community legislature understands that, for companies whose market share does not exceed 30%, and for that matter, are exposed to competition from other suppliers of goods and services that the consumer may consider interchangeable, the benefits derived from the fixing of maximum prices or the recommendation of a resale price, compensate the detriment of the effects of competition, in assuming that the optimisation of the efficiency of the distribution chain shall have a positive repercussion for the end customers of a product or service.
Pursuant to the above, we may conclude that the fixing of a determined resale price as well as the fixing of a minimum resale price by the manufacturer constitute practices which are contrary to competition laws, whereas the recommendation of prices and the fixing of a maximum resale price are acceptable, providing that the market share of both the distributor and manufacturer do not exceed 30% in their respective markets.
Vilá Abogados
For more information, please contact:
va@vila.es
27th March 2015
