E-commerce and competition law: how to deal with online distribution and price erosion?

Can online distribution be excluded?

Internet sales cannot be excluded entirely. However, suppliers can apply a selective distribution system that obligates internet distributors to maintain a brick-and-mortar store or showroom as well. Suppliers can furthermore demand that the distributor sells a certain absolute minimum number of products offline. In sum, a supplier can prevent sale by stores that exclusively trade on the internet. It is furthermore possible:

  • to temporarily restrict internet sales if the distributor has had to make significant investments to introduce a new product. The European Commission has imposed a two-year limit in that regard; or
  • to set different standards for internet stores than for brick-and-mortar stores. Those standards may relate to the design of the website, the maintaining of a (telephone) helpdesk and a home installation service. Provided that the standards have the same objectives as and results similar to those for brick-and-mortar stores and the difference between them is justified by the different types of distribution, it is permitted to apply such standards.

Can online price erosion be avoided?

It is possible to, at least partly, neutralise the cost advantage of an Internet store compared with a brick-and-mortar store. It is advisable to do so in the form of a fixed compensation. It is not permitted to unrestrictedly have the prices vary depending on whether a distributor sells more products offline or online.

Introduction and amendment of e-commerce policy

The introduction or amendment of an e-commerce policy must be an unilateral decision of the supplier. If the supplier changes its policy at the insistence of distributors with brick-and-mortar stores (for instance to enforce a certain price behaviour), both parties can be fined for breaching the ban on cartels. Recently the OFT (Office of Fair Trading), for instance, fined Roma Medical Aids Ltd., a producer of mobility scooters in the United Kingdom, and a number of (online) retailers. According to the OFT the producer and the retailers had concerted their practices in order to exclude online retailers that operated nationwide. The decision demonstrates not only that the OFT is paying a great deal of attention to competition restrictions in online distribution, but also that relatively small companies are not being spared.

At the same time the online world is also changing rapidly. Internet stores such as eBay and Amazon are apparently considering opening showrooms or brick-and-mortar stores. That step may have consequences for existing distribution systems because eBay and Amazon will then no longer qualify as distributors that exclusively sell via the internet. Suppliers will therefore have to take competition law into account when setting up a distribution system and an e‑commerce policy. The Bundeskartellamt recently reported that in order to put an end to an investigation of its European e-commerce policy, Sennheiser had decided no longer to prohibit its distributors from reselling Sennheiser products via Amazon.

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