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Striking the wrong chord: Perils of anti-competitive pricing

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United Kingdom

The CMA has issued a stark reminder about the perils of anti-competitive pricing practices.

Recent investigations and fines

The CMA recently issued substantial fines totalling more than £13.7 million on suppliers of musical instruments and equipment for restricting online discounting and a further fine to a supplier engaging in retail price maintenance ("RPM"). The parties involved were leading players in the industry.

As a result of these investigations, it has come to light that RPM is widespread within the musical instruments sector.

RPM

RPM involves the supplier controlling the resale price by forcing the retailer to stay above a minimum price and restricting discounting. In turn, limiting competition and a fair deal for customers.
 
CMA open letter

As part of its follow up compliance work, the Competition and Markets Authority has issued almost 70 warning letters to suppliers and retailers and published an open letter to suppliers and retailers in the musical instruments industry to warn against anti-competitive pricing practices and to provide a reminder of the consequences of committing breaches.

The intention of the open letter is to reach those companies who are not yet suspected of RPM reminding them of what RPM practices look like and what to do if they are or might be involved.

The open letter and accompanying guidance reminds suppliers and retailers that:

  • restricting retailers from discounting or having the ability to set their own price is illegal;
  • RPM can take many forms, not just a written agreement. It could be in the form of threats, financial incentives, informal agreements, "gentlemen's agreement", whether verbally or in writing;
  • both the supplier and the retailer could be breaking the law if they agree on a minimum price;
  • retailers could also be investigated and fined if found to have been co-operating with a minimum pricing policy;
  • consequences include severe fines of as much as 10% of a business’s global turnover; and
  • fines can be increased for intentional breaches.

The open letter also confirms that the CMA has launched its own software tool to assist with market intelligence by monitoring price levels of musical instrument retailers.

Companies in all sectors should take note of these actions by the CMA as the principles, the CMA's stance and possible consequences are not sector specific. The spotlight is currently on the musical instruments sector, but it can be easily replicated to other sectors.

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