Non-Pricing Issues
Article 102 states that, “any abuse by one or more undertakings of a dominant position within the internal market or in substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between member states.” This section examines how abuse can arise in the form of non-price terms.
The key to complying with Article 102 is to avoid exclusionary or exploitive terms or practices. Major companies, dominant in nature, obviously engage in price wars with their competitors, we see this in price fixing and marketing sharing, examined more in the Pricing Issues Section. However, companies also rely on non-price competitions, involving deviant advertising and marketing strategies.
Non-price wars are typical of markets in which there are only a few companies that control the majority of the power, like a monopoly or oligopoly. Abuse by those in dominant positions may affect trade between states and is incompatible with the internal market. Abuse may indirectly or directly pose burdens or unfair trading conditions on other member states. Comparative advertising allows for fair competition and consumer information. Unfair commercial practices may harm both business-to-business relations and business-to-consumer relationships.
Consumers could be prejudiced by companies who limit production, market or technology in the form of abuse. Companies that rely on non-price abuses may use promotional services such as brand management, marketing campaigns, sales promotions and free gifts that make their brand more appealing. Other businesses could be prejudiced by companies who forge supply agreements or engage in selective distribution, a system where sellers are authorized to comply with certain qualitative criteria and are not allowed to sell outside of an authorized network. Restrictive agreements on production limitation or customer allocation and collective practices between businesses are prohibited by EU Competition law.
EU Competition law is meant to deter brands for exclusive practices. Full-line forcing is an example of abuse in which a supplier forces a retailer to buy a full line of products rather than just one of them. Hypothetically, if Apple refused to supply BestBuy with I-phone 13s unless they also took several 2005 I-pod Nano, they would be abusing their power over BestBuy. Tying is another abusive process in which products are ‘tied’ to one another and not sold separately. For example, this abuse would take form if you wanted to buy a new Apple charger but could only obtain one by purchasing a new I-phone entirely. The way goods are advertised, listed and entered into the market require strict scrutiny and review from the European Commission.
The European Commission recently sanctioned GUESS, a global clothing company, for restricting certain retailers from accurately advertising their products. Again, there is a whole market focused on wholesale vs. retail prices, but here, we will focus on GUESS’s bad faith practices of restricting customer access. GUESS engaged in a Geo-blocking scheme, implicitly prohibited by Article 102 and Article 101.
Article 101(1) prohibits “directly or indirectly fix purchase or selling prices or any other conditions, limit or control production, markets, technical development or investment, share markets or sources of supply, apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or make the conclusion of contracts subject to tie-in of supplementary obligations unconnected with the subject matter of the contract”. Geo-blocking is an undertaken communication which may affect trade between states and is therefore prohibited.
In December 2018, the European Commission fined GUESS €39,821,000 for geo-blocking consumers and other member states. Geo-blocking is generally used in commercial practices, and understood to mean any practice that restrict a customer’s access to or use of a website based on geo factors such as location, including denying a customer access to a website based on their location. GUESS restricted retailers from advertising online and re-routed customers to different websites with varying content and prices. This helped them maintain artificially high retail prices. GUESS is a part of a selective distribution based on quality, the European Economic Area (EEA). As an EEA member, GUESS must comply with EU competition rules in which consumers must be free to purchase from any authorized retailer. Therefore, this retailer must also be freely allowed to advertise and resell products. However, GUESS was found to have, amongst other things, restricted authorized retailers from using the Guess brand names and trademarks for the purpose of online search advertising.
The EU Commission found that GUESS’s geo-blocking scheme constituted an illegal practice in which consumers were deprived of the benefit of shopping across borders. This geo-blocking system allowed GUESS to partition off certain European markets, which resulted in an increase in retail prices.
The non-pricing issue of blocking in this case harmed retailers in various locations. Along with pricing, advertising and intellectual property have great importance in the retail world. When a supplier restricts a retailer from using their trademarks for marketing and online stores, online search advertising is limited and the internal market is abused.
By: Julia Rooney