Pricing

Price Fixing Agreements

Arrangements and agreements, which have as their object, the fixing and setting of prices, either directly or indirectly, are prohibited by competition law. They are rarely, if ever, capable of being justified.

Generally, price-fixing constitutes a serious breach of competition law. It is contrary to the very basic principle that prices should be set by competition. However, the application of uniform prices by competitors does not necessarily constitute price-fixing.

It is sometimes argued that price-fixing might be beneficial if it is at a reasonable level or below cost.  It is argued that price fixing may assist research and development, provide stability to the market and eliminate cyclical effects. However, price-fixing arrangements have been licensed, only exceptionally by competition authorities, in very particular circumstances and in particular sectors only.

It is rare to encounter explicit agreements on price-fixing between competitors since the Competition Act was first enacted. It is more likely to arise indirectly.

Scope

The form in which the price fixing takes place is irrelevant. There need not be an explicit agreement or any agreement at all The regular exchange of price information may breach may constitute price fixing in itself.

Price-fixing may arise in the rules of a professional or trade body.  Price-fixing may be horizontal and may be undertaken between the participants in the same industry and potential competitors. It may also occur vertically when a distributor, manufacturer or wholesaler, instigates price fixing at lower levels, typically at the consumer level.

Price-fixing applies to both the sale and purchase price.  Although not as readily apparent, dominant purchasers may equally interfere with the free operation of the market. Price fixing may involve the setting of maximum and minimum prices.

Price Fixing Arrangements

Concerted practices and arrangements may constitute price-fixing.  Arrangements to maintain a differential between two markets or to agree on the timing of price changes are likely to breach the Competition Act.

If prices move in tandem, it may constitute evidence of price fixing.  Even if they do not move simultaneously, there might be price-fixing if the movement is orchestrated.

Arrangements affecting terms and conditions, target prices, fixing rebates and discounts, imposing standard terms, and linking prices to price indices are likely to breach the prohibition.  Even agreements not to sell at a loss or sell below cost are likely to be invalid.

Arrangements between businesses or undertakings with or through trade bodies, which set types and levels of discount, are likely to breach competition law. This may prohibit discounts, where they indirectly fix prices.

The setting of margins by agreements or arrangements between undertakings and/or trade associations is likely to breach competition law. Credit terms and the criteria for grant of credit and payment terms may breach the prohibition.

Price Discrimination

Price discrimination occurs when sellers discriminate between purchasers in relation to the sale of the same or similar goods and services in similar circumstances.  Price differences may be justified and are normal, but they should be related to the difference in the underlying costs.  It may constitute price discrimination to sell different goods at the same prices, or the same goods at different prices to different purchasers.

Discriminatory pricing will often be desirable and necessary.  Businesses may need to sell at different prices in order to clear stock or during off-peak periods. If the discrimination involves applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, the arrangement is prohibited.  Similarly, discriminatory pricing may constitute an abuse of the dominant position on the part of a dominant market participant.

Predatory Pricing

Pricing may be predatory if it is at a level such as to prevent competitors from entering the market.  There may be below-cost selling.

It is capable in principle, of constituting an anti-competitive practice or an abuse of a dominant position.  Rebates may potentially constitute anticompetitive arrangements or an abuse of dominance. They may incentivise a purchaser not to deal with a competitor.

Predatory pricing usually involves a business selling below cost in order to force a competitor out of the market or to lose market share. It typically involves trading below cost for a period.  The aim is generally to increase prices after the competitors have been eliminated or weakened.  Predatory purchase prices may equally be prohibited.

Predatory pricing by a non-dominant business is not a breach of the Competition Act in itself.  However, if it is undertaken by a dominant undertaking or pursuant to an arrangement between undertakings, it may constitute a breach.

Predatory pricing may take many forms.  It may involve cutting a competitor out of supplies by overpaying a supplier. It typically occurs where the barriers to entry onto the market are high.

Resale Price Maintenance

Retail Price maintenance agreements involve businesses agreeing with each other to resell only at a particular price or on terms specified or agreed upon.  It may involve an agreement between a single entity and a supplier. It may be the subject of an arrangement collectively or set out in trade rules.

Resale price maintenance was formerly very common in the UK and Ireland.  It applied, in particular, in the pharmaceutical industry, consumer goods and in particular in relation to books and periodicals.

Retail Price maintenance is not inherently unlawful in itself.  It was permissible at common law.  A recommendation of resale price maintenance does not, itself, constitute a breach of competition law. However, there may be an infringement if there is an implied agreement, arrangement or concerted practice under which a seller, in fact, adheres to recommendations.

Recommended prices of themselves are not necessarily a breach.  They may, and frequently will, constitute a breach of the prohibition on anticompetitive behaviour. The imposition of retail price maintenance may of itself, be an abuse of the dominant position, where it is imposed by virtue of the dominant position.

Other Pricing Issues

Parallel pricing involves two businesses changing their price in the same manner and at the same time.  Parallel pricing is not prohibited unless there is an agreement or arrangement between the parties in breach of competition law or there is an abuse of a dominant position.

Excessive pricing in this context refers to charging greater than what is a reasonable return in terms of the underlying cost structure.  It is not prohibited in itself unless it breaches one of the general prohibitions.  Excessive pricing may be indicative of the existence of a cartel or of the abuse of a dominant position.

Trading Conditions

Non-price terms and conditions of trading may constitute anticompetitive practices or be an abuse of a dominant position.  The trading conditions may embrace periods of credit, the interest charged, differing levels of service, guarantees, warranties and the whole range of trading terms and conditions.

Standard terms and conditions may constitute anti-competitive practice. Examples of anti-competitive arrangements include directly or indirectly fixing trading or price conditions, applying dissimilar conditions to equivalent transactions with other trading bodies, thereby placing them at a competitive disadvantage,  making the conclusion of contract subject to acceptance by the other party of supplementary obligations which by their nature or according to commercial usage, have no connection with the subject of such contracts.

Unfair Trading Conditions

Instances of abuse of dominant position include directly or indirectly imposing unfair purchase and selling prices or other unfair trading conditions It includes applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage or making the conclusion of the contract subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts.

Restrictions on the use of goods or the imposition of conditions under which they may be dealt with will generally breach competition law.  This may include requirements and prohibitions on resale, restrictions on the quantum permitted for resale and restrictions on the category of the end use of the goods.

Generally Permitted

EU Commission guidance sets out on certain restrictions which will not generally breach competition law restrictions in themselves. They include

• issuing of standard printed terms and conditions by trade associations;
• restrictions on duty-free retailers from selling as part of duty-paid transactions.
• restrictions on wholesalers selling to end-users (the wholesale and retail levels form different functions);.
• restrictions on large-scale institutional or other large customers, reselling goods supplied for their particular purposes to others.

Agreements and arrangements between undertakings and conditions imposed by dominant undertakings in relation to key terms and conditions may be unlawful. This may include common guarantee schemes and joint after-sales service.

Discrimination in terms and conditions may be anti-competitive in accordance with the general principles.

Market Segmentation

At EU level, agreements which tend to segment the single market are subject to particular scrutiny.  This will include territorial restrictions, bans on imports and exports and price discrimination in imports and exports,   In each case, they are capable of constituting anti-competitive arrangements or abuse of a dominant position.

Advertising Restrictions

Restrictions on advertising are likely to be invalid. Advertising is a key element in the operation of markets.  An agreement not to advertise in itself is likely to breach the prohibition. Arrangements for advertising jointly may potentially be anti-competitive.  However, they may be permissible where their purpose is to bring the public\’s attention to goods of a particular industry.

Businesses must not be prevented from advertising individually.  The promotion of joint quality labels and marks may be permissible.  It should be available to anybody in the industry who wishes to have access to it, subject to meeting objectively justifiable standards.