Online pricing: the CMA is watching

This briefing provides a quick overview of some key competition activity in the areas of resale price maintenance (RPM) and digital markets. This is relevant to suppliers and retailers of goods and services, particularly those selling goods online.

RPM and enforcement of vertical agreements in digital markets continue to be key focus areas for the UK Competition & Markets Authority (CMA). Enforcement activity looks set to remain high, with the potential for significant change in the way digital markets are regulated in the UK from 2021.

Resale price maintenance

RPM is where a supplier and a retailer agree that the retailer will not resell the supplier's products below a specified price. RPM can be implemented directly – through an explicit agreement to maintain a minimum price – or indirectly, where enforcement of a minimum price is achieved through coercion or penalties, or other restriction.

There has been considerable enforcement activity relating to RPM in particular, much of which has focused on online sales practices. A significant investigation looked at the musical instruments sector in June 2020, where the CMA issued fines for RPM on high tech musical instruments (such as electronic drums and synthesisers) to Roland, Korg, Yamaha and the online retailer GAK across three separate cases, with fines totalling £5.8 million. This followed on from two other RPM cases concerning the musical instrument sector, including a record £4.5 million fine for Fender guitars in January 2020 and a £3.7 million fine for the electric keyboard manufacturer Casio.

The Fender guitars case in particular should provide a salutary lesson as to what not to do with your documents and evidence when the CMA arrives at your premises to conduct an investigation. Fender hid relevant documents during an inspection of its UK headquarters and consequently incurred an additional £25,000 fine.

So widespread has the issue of RPM been in the sector, the CMA has issued an open letter to the industry, and has sent warning letters to 70 different suppliers and retailers where it already has sufficient evidence to suspect that they may have broken the law. Further guidance on RPM is available for retailers from the CMA's website too.

Much of the CMA's focus has been on online sales. Interestingly, it has developed and launched an in-house price monitoring tool to detect RPM activity. This appears to have been deployed in relation to musical instruments, but no doubt could be adapted to monitor other markets (if this has not happened already). Given the CMA's increasingly activist approach to consumer protection, we can expect this to continue to be a focus area. The CMA's case study page is rife with examples of RPM, together with useful guidance materials for businesses.

The CMA's RPM enforcement activity continues, with the Authority in November 2020 launching a fresh investigation into Dar Lighting for RPM in the domestic light fitting sector. This sector also has a history of enforcement action, with a 2017 case resulting in a £2.7 million fine for the National Lighting Company Ltd (a fine that was increased by 25% when the company ignored a CMA warning letter).

Digital markets and vertical agreements

The CMA has been actively looking at digital markets, with a particular focus on online platforms and digital advertising. It completed a wide-ranging market study in July 2020; however this resulted in a decision not to make a more detailed market investigation reference – an instrument within the CMA's toolkit under the Enterprise Act 2002 that allows it to examine a particular market closely and impose structural remedies to address competition issues.

However, the CMA did find there was substantial consumer harm due to lack of competition in digital markets, and recommended the creation of a Digital Markets Unit, and a new regulatory regime for the sector – something that would require new primary legislation. In November 2020, the UK Government announced the creation of the new unit, and will consult on its form and functions in early 2021 and legislate as soon as possible thereafter.

Meanwhile, earlier in November, the CMA published the results of an investigation into the practices of ComparetheMarket, a significant online price comparison site for home insurance. It found anti-competitive vertical agreements in place between the platform and its suppliers. The CMA fined ComparetheMarket £17.9 million for imposing wide “most favoured nation” clauses in its contracts with suppliers, preventing them from offering cheaper quotes through rival platforms.

With the creation of the Digital Markets Unit, we can expect the CMA to continue to focus its enforcement efforts, with the potential for a significant change in the way these markets are regulated in the UK from 2021.