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Question for any lawyers/legal observers out there: What exactly did these companies do wrong? From the article, 'If those retailers did not follow the prices

by cepth 8y ago

Question for any lawyers/legal observers out there: What exactly did these companies do wrong? From the article, 'If those retailers did not follow the prices requested by manufacturers, they faced threats or sanctions such as blocking of supplies.' Does this imply that any retailer in the EU has a legal right to sell goods at any price? If I'm a retailer reselling Asus or Phillips products at cost in order to gain market share, how is that not anti-competitive behavior as well? I don't understand why suppliers cutting off supplies to retailers is anti-competitive in this case. As anyone who has done business with Amazon through Vendor Central can attest to, Amazon gives you no ability to control the sale price of your goods. Their pricing algorithms automatically adjust the price on most items "Sold and fulfilled by Amazon.com" to be the lowest on the internet. To me, there is a very troubling extension of the EU's logic here. Quite famously, the high end cookware manufacturer Wusthof tried to prevent Amazon from selling its products, since Amazon was undercutting the value of its brand by offering massive discounts over prices on Wusthof's own site, and its brick and mortar distribution channels. Does this mean that under this EU ruling, that Amazon could sue Wusthof for attempting to "block" its supply of Wusthof goods? To take it a step further, Amazon lost money on each early-model Kindle sold. If Amazon attempted to rapidly gain market share in say the chocolate market by reselling Lindt or Godiva chocolate slightly below cost, how does the anti-trust law work out here? Amazon would arguably be engaging in anti-competitive behavior, while the chocolate maker could be fined for telling Amazon it planned to withhold future supplies? I'm generally a big supporter of consumer rights legislation and enforcement, but this makes me wonder if the EU is going too far. Their ruling seems to have the potential to open up a huge can of worms, and may actually entrench the monopoly power of larger ecommerce sellers.

kalleboo 8y ago
> Does this imply that any retailer in the EU has a legal right to sell goods at any price? If I'm a retailer reselling Asus or Phillips products at cost in order to gain market share, how is that not anti-competitive behavior as well? There are other laws for price dumping https://en.wikipedia.org/wiki/Predatory_pricing#European_Union https://en.wikipedia.org/wiki/Predatory_pricing#European_Uni...
- cepth 8y ago
  Right. Selling below marginal cost can trigger these laws. But how do these two concepts interact? If someone is price dumping, and I cut off supply to them, are we both in violation of the law?
  - nerbert 8y ago
    In the EU you can't force someone to sell at a specific price, you can only recommend a price. Also you can't dump price and those are two separate things.
  - kalleboo 8y ago
    > If someone is price dumping, and I cut off supply to them, are we both in violation of the law? Probably, yes. Price dumping laws are there to protect other resellers, not the brand image or whatever they were going for here, so the OEM doesn't have any stake in a price dumping case.
    - cepth 8y ago
      I think it's an interesting question whether an OEM has a vested interest in a price dumping case. If you are a multi-channel retailer, like ASUS is, where you're selling through physical and online channels, if a large retailer like Amazon decides to cut the final sale price of your goods, this definitely has a cascading effect on your other business relationships. In particular, your physical distribution customers are going to wonder how Amazon is able to sell for such a low price, and may pressure you to offer them a better wholesale price. We may hope that the threat of EU enforcement dissuades an Amazon-type retailer from this type of price dumping/cutting, however by the time the law is actually enforced, you (the manufacturer) may have already suffered irreparable damage to your business relationships with your other customers, and may have suffered a permanent hit to the margins you can make. In a situation like that, I'm having trouble seeing why it would be unreasonable to stop selling to that price-cutting retailer, particularly if they are a player with entrenched market power.
      - 8y ago
franciscop 8y ago
Well yeah. If company A improves their margins and can sell for a lower price, then company B has to either improve their margins, differentiate somehow or stop selling the product. That's how the market is supposed to work, which ends up in a better consumer price. If companies A and B agree to sell at X price, the consumer loses since there is market stagnation. If company A sells under cost, then they are effectively losing money. I believe this is also penalized, but it's still not sustainable long-term, very risky and with no direct (but indirect) negative effect on the consumer. Note: IMHO the Amazon Kindle main point is not about being sold under cost, it is about being sold as a loss leader, which is quite different.
- cepth 8y ago
  I agree that if companies A and B both AGREED to sell at X price, that is collusion, and leads to the formation of an oligopoly. That kind of cartel behavior should be stamped out. However, unless I'm missing it in the article, I don't think that's what happened here? Asus wasn't colluding with other laptop makers to inflate what you buy for a laptop. Regarding below cost selling not being sustainable long-term, I think that's debatable. Amazon lost money on every "super saver" free shipping item it sold a decade ago. But, eventually it was able to negotiate better and better rates with UPS and FedEx. In the book market, their free shipping and low prices have led to them being the overwhelming big fish for books in the US. And, after they've gained market share, they're able to raise prices on books (https://www.businessinsider.com/amazon-accused-of-raising-prices-2013-7 https://www.businessinsider.com/amazon-accused-of-raising-pr...).
  - franciscop 8y ago
    Asus was colluding with other resellers to inflate their selling price of their stores. Not of laptops in general, but of Asus laptops themselves: > The Commission found the manufacturers put pressure on ecommerce outlets who offered their products at low prices So it is literally company A telling/forcing company B to sell at X price.
    - cepth 8y ago
jdietrich 8y ago
> I don't understand why suppliers cutting off supplies to retailers is anti-competitive in this case. It's about intent and effect. Resale price maintenance isn't illegal per se, but it can become illegal if it is intended to stifle competition to an unreasonable extent. Manufacturers are within their rights to choose distribution and retail partners, but those rights aren't unconditional. They can't coerce retailers in ways that are detrimental to competition and the proper functioning of the market. I can refuse to supply a retailer because they provide inadequate customer support or they don't order enough product for it to be worth my while, but I can't refuse to supply a retailer with the specific intention of stifling competition. For the corollary in US law, see: https://en.wikipedia.org/wiki/Rule_of_reason https://en.wikipedia.org/wiki/Rule_of_reason
rsynnott 8y ago
> Does this imply that any retailer in the EU has a legal right to sell goods at any price? Below-cost selling would also be illegal in many cases: https://en.wikipedia.org/wiki/Predatory_pricing#European_Union https://en.wikipedia.org/wiki/Predatory_pricing#European_Uni... > Does this mean that under this EU ruling, that Amazon could sue Wusthof for attempting to "block" its supply of Wusthof goods? No, Amazon doesn't have a right to carry any particular brand of goods.
- usrusr 8y ago
  Adding to this: no law would keep Amazon from sending employees to stores to buy Wusthof stuff (whatever that is...) to put up for resale on Amazon, but they would get in trouble of they resold at a lower price. It gets slightly more interesting when trademarks are involved, I think Birkenstock is currently trying to block out Amazon (particularly marketplace) on that basis.
Aloisius 8y ago
> Does this imply that any retailer in the EU has a legal right to sell goods at any price? Generally speaking? Yes. But there are a whole lot of exceptions to that. Books in most EU countries have a price fixed by the publisher. Predatory pricing is illegal. > If I'm a retailer reselling Asus or Phillips products at cost in order to gain market share, how is that not anti-competitive behavior as well? It can be considered predatory pricing if competitors can't sustain equal prices without going out of business and you can raise prices later. > Does this mean that under this EU ruling, that Amazon could sue Wusthof for attempting to "block" its supply of Wusthof goods? The anticompetitive nature and legality of vertical restraints (single supplier to retailer) aren't quite as clear-cut as horizontal ones (multiple suppliers or distributors or retailers between themselves). Manufacturers have been allowed a certain amount of control over their distribution agreements like requiring enforcement of Minimum Advertised Pricing or quality standards for retailers, but each situation is analyzed on a case-by-case basis to the effects of the ban and if there is legitimate justification.
- TheSpiceIsLife 8y ago
  > It can be considered predatory pricing if competitors can't sustain equal prices without going out of business and you can raise prices later. Isn't this the tech-VC model? Create a "new" product (same as the old product but ignore regulation), burn venture capital till the traditional players fold, profit. Okay, I'm thinking specifically of Uber. But stil...
  - zaarn 8y ago
    Basically yes. That kind of stuff, atleast in Germany, is frowned upon. Competing on the market on pure merit is preferred. However, it doesn't mean that if you can do it cheaper that's disallowed, quite the opposite. If you can do it cheaper it's explicitly encouraged and that's what these policies try to encourage. What they discourage, is as you say, burn money to drive out other players, then run at the same price as the previous players. It's also somewhat why the EU fined google, at least in part, because Google's behavior did not allow phone vendors to compete on their merit in the market by being unable to offer alternative Android variants if they want Google's variant. It's a different free market philosophy than the US free market similarly to how other philosophies (like Freedom of Speech) work different in the EU.

by cepth 8y ago

kalleboo 8y ago

> Does this imply that any retailer in the EU has a legal right to sell goods at any price? If I'm a retailer reselling Asus or Phillips products at cost in order to gain market share, how is that not anti-competitive behavior as well? There are other laws for price dumping https://en.wikipedia.org/wiki/Predatory_pricing#European_Union https://en.wikipedia.org/wiki/Predatory_pricing#European_Uni...

cepth 8y ago
Right. Selling below marginal cost can trigger these laws. But how do these two concepts interact? If someone is price dumping, and I cut off supply to them, are we both in violation of the law?
- nerbert 8y ago
  In the EU you can't force someone to sell at a specific price, you can only recommend a price. Also you can't dump price and those are two separate things.
- kalleboo 8y ago
  > If someone is price dumping, and I cut off supply to them, are we both in violation of the law? Probably, yes. Price dumping laws are there to protect other resellers, not the brand image or whatever they were going for here, so the OEM doesn't have any stake in a price dumping case.
  - cepth 8y ago
    I think it's an interesting question whether an OEM has a vested interest in a price dumping case. If you are a multi-channel retailer, like ASUS is, where you're selling through physical and online channels, if a large retailer like Amazon decides to cut the final sale price of your goods, this definitely has a cascading effect on your other business relationships. In particular, your physical distribution customers are going to wonder how Amazon is able to sell for such a low price, and may pressure you to offer them a better wholesale price. We may hope that the threat of EU enforcement dissuades an Amazon-type retailer from this type of price dumping/cutting, however by the time the law is actually enforced, you (the manufacturer) may have already suffered irreparable damage to your business relationships with your other customers, and may have suffered a permanent hit to the margins you can make. In a situation like that, I'm having trouble seeing why it would be unreasonable to stop selling to that price-cutting retailer, particularly if they are a player with entrenched market power.
    - 8y ago

franciscop 8y ago

Well yeah. If company A improves their margins and can sell for a lower price, then company B has to either improve their margins, differentiate somehow or stop selling the product. That's how the market is supposed to work, which ends up in a better consumer price. If companies A and B agree to sell at X price, the consumer loses since there is market stagnation. If company A sells under cost, then they are effectively losing money. I believe this is also penalized, but it's still not sustainable long-term, very risky and with no direct (but indirect) negative effect on the consumer. Note: IMHO the Amazon Kindle main point is not about being sold under cost, it is about being sold as a loss leader, which is quite different.

cepth 8y ago
I agree that if companies A and B both AGREED to sell at X price, that is collusion, and leads to the formation of an oligopoly. That kind of cartel behavior should be stamped out. However, unless I'm missing it in the article, I don't think that's what happened here? Asus wasn't colluding with other laptop makers to inflate what you buy for a laptop. Regarding below cost selling not being sustainable long-term, I think that's debatable. Amazon lost money on every "super saver" free shipping item it sold a decade ago. But, eventually it was able to negotiate better and better rates with UPS and FedEx. In the book market, their free shipping and low prices have led to them being the overwhelming big fish for books in the US. And, after they've gained market share, they're able to raise prices on books (https://www.businessinsider.com/amazon-accused-of-raising-prices-2013-7 https://www.businessinsider.com/amazon-accused-of-raising-pr...).
- franciscop 8y ago
  Asus was colluding with other resellers to inflate their selling price of their stores. Not of laptops in general, but of Asus laptops themselves: > The Commission found the manufacturers put pressure on ecommerce outlets who offered their products at low prices So it is literally company A telling/forcing company B to sell at X price.
  - cepth 8y ago

jdietrich 8y ago

> I don't understand why suppliers cutting off supplies to retailers is anti-competitive in this case. It's about intent and effect. Resale price maintenance isn't illegal per se, but it can become illegal if it is intended to stifle competition to an unreasonable extent. Manufacturers are within their rights to choose distribution and retail partners, but those rights aren't unconditional. They can't coerce retailers in ways that are detrimental to competition and the proper functioning of the market. I can refuse to supply a retailer because they provide inadequate customer support or they don't order enough product for it to be worth my while, but I can't refuse to supply a retailer with the specific intention of stifling competition. For the corollary in US law, see: https://en.wikipedia.org/wiki/Rule_of_reason https://en.wikipedia.org/wiki/Rule_of_reason

rsynnott 8y ago

> Does this imply that any retailer in the EU has a legal right to sell goods at any price? Below-cost selling would also be illegal in many cases: https://en.wikipedia.org/wiki/Predatory_pricing#European_Union https://en.wikipedia.org/wiki/Predatory_pricing#European_Uni... > Does this mean that under this EU ruling, that Amazon could sue Wusthof for attempting to "block" its supply of Wusthof goods? No, Amazon doesn't have a right to carry any particular brand of goods.

usrusr 8y ago
Adding to this: no law would keep Amazon from sending employees to stores to buy Wusthof stuff (whatever that is...) to put up for resale on Amazon, but they would get in trouble of they resold at a lower price. It gets slightly more interesting when trademarks are involved, I think Birkenstock is currently trying to block out Amazon (particularly marketplace) on that basis.

Aloisius 8y ago

> Does this imply that any retailer in the EU has a legal right to sell goods at any price? Generally speaking? Yes. But there are a whole lot of exceptions to that. Books in most EU countries have a price fixed by the publisher. Predatory pricing is illegal. > If I'm a retailer reselling Asus or Phillips products at cost in order to gain market share, how is that not anti-competitive behavior as well? It can be considered predatory pricing if competitors can't sustain equal prices without going out of business and you can raise prices later. > Does this mean that under this EU ruling, that Amazon could sue Wusthof for attempting to "block" its supply of Wusthof goods? The anticompetitive nature and legality of vertical restraints (single supplier to retailer) aren't quite as clear-cut as horizontal ones (multiple suppliers or distributors or retailers between themselves). Manufacturers have been allowed a certain amount of control over their distribution agreements like requiring enforcement of Minimum Advertised Pricing or quality standards for retailers, but each situation is analyzed on a case-by-case basis to the effects of the ban and if there is legitimate justification.

TheSpiceIsLife 8y ago
> It can be considered predatory pricing if competitors can't sustain equal prices without going out of business and you can raise prices later. Isn't this the tech-VC model? Create a "new" product (same as the old product but ignore regulation), burn venture capital till the traditional players fold, profit. Okay, I'm thinking specifically of Uber. But stil...
- zaarn 8y ago
  Basically yes. That kind of stuff, atleast in Germany, is frowned upon. Competing on the market on pure merit is preferred. However, it doesn't mean that if you can do it cheaper that's disallowed, quite the opposite. If you can do it cheaper it's explicitly encouraged and that's what these policies try to encourage. What they discourage, is as you say, burn money to drive out other players, then run at the same price as the previous players. It's also somewhat why the EU fined google, at least in part, because Google's behavior did not allow phone vendors to compete on their merit in the market by being unable to offer alternative Android variants if they want Google's variant. It's a different free market philosophy than the US free market similarly to how other philosophies (like Freedom of Speech) work different in the EU.