antitrust

Luxury brands are… special

EU’s highest court decided that prestigious brands like Calvin Klein can refuse to have their products sold on online platforms like Amazon in order to preserve their ‘aura of luxury’.

What happened:

COTY, the company behind reputable brands like Chloé, Calvin Klein and Marc Jacobs, distributes its beauty products in Europe through regional distributors. One of its distributors in Germany – Parfümerie Akzente (‘Akzente’) – decided to sell COTY’s products through the German Amazon site (amazon.de). This was not permitted under the contract that COTY signed with Akzente. Their contract allowed Akzente to sell only on websites that preserved the luxury character of COTY’s products. Essentially, what companies like COTY are trying to do with such contracts, is to make sure that online shoppers still get the ‘luxury aura’ that their brands are known for when customers shop through an online shop. The presentation of a brand’s logo, font and colours are some of the details that these brands look out for on websites that sell their products. The effect of this provision in the contract meant that Akzente couldn’t sell COTY’s products on Amazon. This was because the Amazon website could not – according to COTY – preserve the luxury image of their brands.No_Amazon.png

The legal issue:

The question for the Court was whether contracts like the one signed by COTY and Akzente violated competition law. Contracts that restrict the freedom of a party can be very problematic for competition. Imagine a situation where a very successful company agrees with shops to sell only their product. If most of your country’s shops sold exclusively Microsoft tablets because of such agreements, competitors like Apple would find it very hard to reach customers and persuade them to buy their iPads. The contract between COTY and Akzente can be bad for competition in a similar way. By requiring that their products are sold on specific websites, COTY can tightly control competition online by refusing to sell to giants like Amazon and Ebay. This can result to high prices and lack of choice for consumers.

COTY+AkzenteThe decision:


Luxury2.pngThe Court of Justice decided that contracts like the one signed between COTY and 
Akzente can be allowed when they are intended to preserve the luxury image of a brand. According to the court, luxury brands are special because their quality is not only measured according to their material characteristics. Their ‘aura of luxury’ additionally ads to their quality. Consequently, agreements that are made to preserve this quality do not violate the rules of competition. So, in a situation where a luxury company makes agreements that dictate who qualifies to be their seller, if these agreements are designed to preserve its image and as long as these agreements are proportionate, uniformly laid down and non-discriminatorily applied; they are good to go.

 

How this impacts you:

The decision means that luxury brands can pull out their products from third-party online sellers like Amazon and Ebay. So, if you’re trying to treat yourself with a Marc Jacobs perfume for the holidays, you might need to rush for that ‘Proceed to Checkout’ button. Otherwise you might have to do your holiday shopping on the brand’s official website.

 
Note: The effect of the case might be obvious on brands that unmistakably have an ‘aura of luxury’. But it might be difficult to draw the boundaries of the luxury category in the future. Is NIKE a luxury brand? 

Have you been overpaying for beer?

AB-InBev
The European Commission (@EU_Competition) is investigating AB InBev (the company behind Budwiser, Corona and Stella Artois) for a potential abuse of dominance. According to the EU competition enforcer, the beer giant designed a strategy to prevent supermarkets from selling their beers to supermarkets in other EU member states.

 

EU-tradeEuropean competition laws try to make sure companies compete fairly in the European Union. Being one of the main provisions of the ‘constitution’ of the EU, these laws clearly seek to ensure that the Union’s core project – the creation of a single, unified market – is facilitated by these competition provisions. For this reason, EU competition law prohibits practices that can hinder the operation of the European single market. The clearest example of such practice is blocking parallel importing.

The EU single market cannot be magically created. Companies need to expand to neighbouring Member States and trade must freely flow between countries. A common practice by companies that sell in different countries is to make use of domestic distributors. Take AB InBev for example. They export their beer in your country, then a distributor deals with the stock, transports it to supermarkets and there it is sold to you. During this process, the producer (AB InBev in this occasion) sets an export price, the distributor sets a higher price, and the supermarket sets an even higher price. So, for example, the price of a Corona might be €1 when it arrives in your country but €4 when it’s sold in your local shop.

Price

These cost differences create a window of opportunity for distributors and supermarkets. Let’s say that the price of Corona in the Netherlands is €2.50. If Corona is sold in Belgium for €3.50, Dutch supermarkets can just export their excess stock to Belgian supermarkets. This practice is called parallel trading and it can lower the prices of goods for the benefit of European citizens everywhere. What companies, like AB InBev, tend to do to make sure that they are in control of prices in each country, is to design strategies to make it difficult for supermarkets to do parallel trading. According to the Commission, AB InBev did exactly that.

Parallel-trade

The case concerned the trade of beers in France, Belgium and the Netherlands. French and Dutch supermarkets sold their beers to Belgian supermarkets. According to the
press release, AB InBev changed the labels of its beers – removing the Dutch text Translationfrom the beers sold in France and the French text from the beers sold in the Netherlands – to prevent the supermarkets from doing parallel trading. This (cleverly designed) strategy can prevent parallel trading because of the 
product-labelling requirements of Member States (especially in countries with more than one official language like Belgium). AB InBev also, allegedly, stopped selling or limited the quantity of their sales to Dutch retailers to reduce their stock.

The investigation is at the stage of issuing of a ‘statement of objections’. That means that AB InBev has not yet been found to have violated EU competition law. The statement simply notifies the company that some behaviour appears problematic. AB InBev has some time to offer propositions to change its behaviour to comply. If not, official proceedings can be commenced.

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The first recorded antitrust trial?

LysiasIf greed is as old as human existence, then antitrust must be as well. There are no records of antitrust laws on Neanderthal cave paintings (or any that we’ve interpreted as such, at least), but the earliest documentation of an antitrust trial is much older than what one would maybe guess. The first written example of an antitrust case is described by an ancient Greek orator named Lysias. The facts of the illegal activity are quite remote and not really relatable to anyone now, but the description of the trial is interesting in observing how antitrust has always had a political side.

Lysias describes the trial of the grain dealers of Athens. Grain was a vital import for the Athenians. The soil in and surrounding Athens was very poor so it wasn’t possible for the Athenians to grow it themselves. Since grain was a necessary ingredient to produce bread, its trade was heavily regulated by the authorities of Athens. Fearing a long winter or possible attacks by Sparta, one of the grain commissioners suggested to the dealers not to compete when buying grain from the docks. Seeing a window of opportunity to make profits on the backs of the Athenians, the grain dealers bought large amounts of grain at the same price and stored it.

Wheat

Since none of the dealers were offering a different purchase price to the merchants at the docks, they created a monopsony. In this way, they fixed the price for wholesale wheat. Wholesale price-fixing is not unheard of in modern times. In fact, fixing of the wholesale prices of medicines for the benefit of citizens is a common practice by modern governments. The price-fixing was not problematic in and of itself. In fact, Lysias admits that the actions of the dealers might have been to the benefit of the Athenians up until that point. This is because storing grain would have secured that Athens would have enough of it in a time of crisis. This explains why the grain commissioner advised the dealers to collude in the first place. The action became problematic when the dealers hoarded the grain and sold it at inflated prices. Through these actions, Lysias explains, the dealers created a disincentive for ships to trade with Athens and they cheated the Athenian public.

Hoarding

The case is interesting just as historical trivia, but it’s also interesting as a chance to witness the political side of antitrust. Lysias doesn’t document the verdict of the trial. But in his speech he accuses the dealers of being ‘resident aliens’ of the city. He appeals to the emotion of the Athenians by saying:

‘…[the grain dealers] are so delighted to see your disasters that they get news of them in advance […] or [they] fabricate […] rumour themselves […] And thus at times, although there is peace, we are besieged by these men’

The story of Lysias is therefore a reminder to be cautious when enforcing antitrust. Because, in the hands of a populist, antitrust can escape the sphere of the legal and enter the realm of the political. 

Trump

Read more:

  1. Lambros E. Kotsiris, ‘An Antitrust Case in Ancient Greek Law’ (1988) 22 Int’l L. 451
  2. Wayne R. Dunham, ‘Cold Case Files: The Athenian Grain Merchants 386 B.C.’ (2007) Available at SSRN: https://ssrn.com/abstract=976028

How to bust a cartel.

I don’t have the technical training to give a lesson on how to raid a meth lab. Although, in this blog post, I will describe how you can report and claim compensation for an anticompetitive practice. 

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There are a lot of markets that are dominated by few players. Apple and Microsoft, Visa and Mastercard, Coke and Pepsi. When that’s the case, it’s really easy for such companies to coordinate their actions and avoid competing to make profits on the backs of consumers. Of course, going after such giants is not an easy – or cheap – task. That’s the reason why antitrust is heavily enforced by competition authorities. The best way to deal with a competition concern is to contact a competition authority to invite them to investigate the issue. If the authority finds a violation of competition laws, then consumers that have been affected by it have the right to claim compensation in their local courts.

 

Finding the right competition authority

Vestager

Commissioner Vestager (Image: Ted.com)

So, let’s say (hypothetically) that you think that two cheese brands that produce the delicious halloumi cheese, agreed among themselves to sell it at the inflated price of €12 per piece. If the halloumi cartel is something that can affect the markets of many EU countries, it’d be best to contact the EU competition watchdog to investigate it. The European competition enforcer is the European Commission, lead by the Commissioner for Competition Margrethe Vestager. If the halloumi cartel is most likely to affect the consumers of just one EU country, you would have to contact your local competition authority to investigate the claim. Thankfully, the European Commission has a useful website with links that direct to the websites of the EU national competition authorities.

Commission

So you would have to look at whether the companies that you’re going after are just small, local companies that sell in your country or whether they are so big that they need to be taken down by the Commission. Obviously there are no rules of thumb here, but if you’re thinking of going after Google, do email Vestager! After deciding which authority will investigate your concern, the process is not at all difficult for you. All you need to do is to contact the authority and to give them as much information as possible to help them with the investigation. You don’t even need to be an affected consumer to do it. So, you can contact them about your suspicion without having bought any halloumi. The contact email for the European commission is this (for national competition authorities, their contact information is available on their website). 

Claiming Compensation

CourtIf you have been personally affected by an antitrust violation, you have a right to compensation for not only your actual loss but for any potential loss of profit, plus interest. The good news is that as soon as the Commission or a National Competition Authority establishes that there has been a violation of antitrust law, you don’t need to make your case against the companies again. That means that all you need to do to claim compensation from the halloumi companies is to prove that you bought a halloumi when the prices were fixed by them.

So here you go. With just one email, you busted the notorious halloumi cartel!

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See more information about how to contact a competition authority.

Anti…what?

If you read the word antitrust somewhere before, it probably ended up being the reason why you closed that article tab. If you haven’t done so again already, I’ll try to explain what antitrust is and why you should care about it.

What is it?

Antitrust is a collection of laws that are put in place to make sure that companies compete with each other effectively and fairly. In order to do so, antitrust is interested in three main issues:

1. Unilateral actions of big market players

Unilateral

Companies that enjoy large market power can act, to a large degree, independently. Take Microsoft for example. More than 80% of the computers out there at the moment run the Windows Operating System (‘OS’). That means that if Microsoft tries to spoon-feed you their software (Office, Outlook or Internet Explorer to name a few) by integrating them in their OS, rival software like Google Docs, Gmail and Chrome will have a hard time competing with them. In the end, you might end up being stuck using a lesser product or a product that you just don’t like, just because the competitors don’t integrate well with Windows.

2. Cooperation between companies

When companies are not big enough themselves, they might try to cooperate with each other to avoid competing. The simplest situation is when a company secretly approaches their rival to agree to fix their prices. In the early 2000, for example, a number of banana importers were found to have conspired to keep the price of bananas at a higher rate than what they would have charged otherwise. That way, everyone won! Except you, who ended up paying for a golden banana.

 Conspiracy2

3. Mergers and acquisitions 

Similar problems can arise when a company buys another one. For example, when Google bought Motorola,  competitors worried whether Google would only offer the best versions of Android to Motorola phones. In the end that didn’t end up being the case, but if that happened, competitors would have been driven away because you wouldn’t want to buy a phone with a bad version of Android.

Megers

Why care for it?

Antitrust can be very relevant to you because, at the end of the day, it makes sure that you will end up getting the best products. Antitrust is designed to help companies, small or big, to compete on a level playing field. In this way, antitrust rewards innovators and punishes those who are sluggish. Next time that you’re frustrated about the prices of printer cartridges or about the fact that every time that you click on a link on iMessage Safari pops up, antitrust might come to the rescue.