The U.K. Office of Fair Trading published an interesting new report yesterday on the potential competition law implications of “price relationship agreements” – for example, where some sellers choose to adopt pricing policies or enter agreements that limit their freedom to price independently, without express coordination with competitors. The OFT’s new report, entitled Can ‘Fair’ Prices Be Unfair? A Review of Price Relationship Agreements, focuses on three types of “price relationship agreements” as follows:
1. Across-sellers agreements – where sellers, for example, promise customers to match (or beat) the price that customers may find for the same or a similar product sold by other sellers.
2. Across-customers agreements – such agreements may include, for example, where a manufacturer of a product is contractually bound to offer a retailer the best price it offers to other retailers (i.e., MFN provisions).
3. Third party agreements – price relationship agreements that are entered into, for example, by manufacturers and retailers, which determine the price paid by customers (e.g., an agreement under which a retailer agrees to set the price at which it resells a manufacturer’s products with reference to the price at which it sells the products of a competing manufacturer).
The OFT’s new report considers, among other things, how such agreements may have a dampening effect on competition or discourage or prevent new entry.
From the OFT (from the Executive Summary):
“In a competitive environment sellers set their price independently of each other, though considering that the prices of their rivals will have an impact on their sales. However, sometimes sellers commit to pricing policies that limit their freedom and that link their prices to other prices charged for the same (or similar competing) products. These types of pricing policies do not determine absolute price level, but set pricing relativities, thus linking different prices to each other. Examples of such pricing policies are price-match guarantees and lowest price promises (which are price commitments ‘across-sellers’) or most favoured nation clauses (which are price commitments ‘across-buyers’). This report explores the possible implications for competition policy of these kind of agreements: it examines the various forms these agreements can take and explores the competition concerns they raise, together with their potential benefits.”
For a copy of the report see: Can ‘Fair’ Prices Be Unfair? A Review of Price Relationship Agreements.
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