Speech of Chris Fonteijn on “Multichannel Distribution”
Vertical agreements in e-commerce have both positive and negative effects. That is why regulatory authorities need to exercise restraint in designating such agreements as hardcore violations, according to Chris Fonteijn, Chairman of the Board of ACM, in Brussels.
On December 9 in 2015, he gave a presentation about “Multichannel Distribution: Experimentation, Innovation and Enforcement” at the CRA Conference on Economic Developments in European Competition Policy.
Chris Fonteijn, CRA Conference Economic Developments in European Competition Policy
Wednesday 9 December 2015
“Multichannel Distribution: Experimentation, Innovation and Enforcement”
1. Thank you Hans. I feel there is a need to shape and also sharpen this important debate. We need to ask: how do developments in multichannel distribution influence enforcement? Especially with regard to vertical restraints? Today I will highlight two (of many) relevant developments in this area. And give two comments on these developments from an enforcement perspective.
2. The first development is one that I personally find very interesting. Consumer behaviour is rapidly evolving.
3. To give you an example; Yippie is a shopping comparison app for your mobile phone. You go shopping. You scan the barcode of a product in a shop. The app immediately shows the price of the product in competing online shops. You decide on the spot where to buy. Buy in the shop if the offer is good. Or immediately purchase online. The goods could be packed and shipped by the online competitor before you even leave the store.
4. Now, apps like this have existed for some time. What’s striking about Yippie is that I have it! Because I generally am a late adapter. There was a prime time commercial on national TV for the free App. The app ranks high in the App store and Google play. That means, that this way of shopping is rapidly becoming main stream. It is important to realise what this means for enforcement.
5. This gives consumers more bargaining power. But what does it mean for producers and distributors? For products that require pre sales services. For products where a shop experience is deemed essential. Will retailers still invest in service? This is an important and well-known argument. Technology, like smartphones and broadband connections, make it extremely easy for competing online shops to lure consumers away. Consumers are footloose. Instantly and on a large scale. This is of course good news for consumers, markets and competition. But, as with all good things, there is a downside too. In this case, the possibilities for competing retailers to free ride on shop investments are growing at an unprecedented scale. And that might have negative influences.
6. The second development is ‘Platformisation’. Hederström and Peeperkoorn use this term. It means that platforms are becoming more and more essential for online trade. I think that the importance of consumer data for many online platforms brings legitimate concerns. Concerns about dominance, entry barriers and privacy, as we heard this morning.
7. So we have two developments, the footloose consumer, and platformisation.
8. Now, I have two comments on these developments from an enforcement perspective.
9. My first comment concerns the public discussion about ‘maximum clarity’ for businesses and legal advisors. Some would argue that this means that more restrictions should be treated as a hard core infringement of competition law.
10. Perhaps the desire for clarity is understandable. However, from an enforcement perspective, it only makes sense to place restrictions in a hard core box, if they generally can be presumed to restrict competition. And they generate no efficiencies that benefit consumers. Does that fit with the reality of the footloose consumer? Does that fit with the concept of platformisation?
11. If a distributor has built up a brand. And wants to protect the retailers who invest in servicing his brand. Should we stop him from restricting the use of 3rd party platforms? We can see the free-rider risk. Indeed, jurisdictions may differ. Should we label that restriction as hard-core? I am not sure.
12. Labelling APPA clauses as hard-core, when we can see the value that they have delivered to consumers. Across the board. Should we label them as hard-core?
13. The world has changed. Consumer behaviour today is not comparable to the Grundig Consten era. It is not comparable to the time of drafting the block exemption. It is not comparable to 2010 when the block exemption was revised. To understand the potential efficiencies of vertical agreements we have to look at consumer behaviour today. Maybe in the past free riding arguments were not convincing, as consumers did not compare or switch on a massive scale. Today, it may be harder to dismiss the free-riding argument as theoretical. It is much more realistic.
14. Last April, ACM published a paper called “Strategy and Enforcement Priorities with regard to Vertical Restraints”.
15. In this paper we say that a case by case prioritization, with a strong focus on potential harm to consumer welfare is the best strategy. This means that we try to estimate the effects of a restriction at a very early stage. We take into account possible harm and possible efficiencies in each specific case. Vertical restrictions also generate obvious efficiencies. If the 6 net effect is negative, we can intervene.
16. So, at this moment we do not see evidence from case law or academia that would justify putting additional restrictions in the hard core box.
17. Indeed there are differences between national competition authorities. For example to allow for specific market conditions. If we start to label these restrictions as hard core, it becomes harder to explain such prioritisation decisions. In practice this decreases clarity for companies.
18. Companies –especially those that operate internationally –will ask why for example RPM is scrutinized in one member state but not in the other. Labelling restrictions as hard core may look like increasing legal certainty.
19. Is it a fact that many NCA’s give low priority to RPM cases? Perhaps. If that is true, why do we hold on to a hard core label? A hard core label only makes sense if RPM - more often than not - generates net negative effects.
20. To my knowledge no successful efficiency defences have been brought forward. Is it because the efficiencies are not there? We don’t know. We need more data, empirical knowledge, a better understanding of the interaction between consumers and companies, between online and offline distribution. I hope that discussions in the ECN community and the Commission’s E-commerce sector inquiry will help us in that sense.
21. My second comment addresses “platformisation”. I believe that, just as with vertical restrictions, we really need to balance the pros and cons. Competition and privacy interests may at times conflict. For example, online platforms have the incentive to reserve consumer data for themselves. Competitors may face an unsurmountable barrier if this data is really essential to them. On the other hand, online platforms could argue that sharing personal data would imply acting against consumer interest.
22. How do we balance competition and privacy interests in this context? And does the essential facility doctrine play a role here? I believe these are important questions we should think about. And because it is a dynamic problem. It requires dynamic thinking. So we shouldn’t rush to make certain types of restrictions illegal, without giving serious consideration to the commercial context in which they arise.
23. There is also a time element I want to stress here. The emergence of platforms and new business models have both positive and negative effects for consumers. In the online data example, the benefits of the free app for the consumer are short term but the negative effects may be long term. Protecting service in brick and mortar shops, with an intrabrand restriction, may be beneficial to consumers in the long term. But in the present consumers may observe less choice. Timing is an important question.
24. I do not believe - even though I am a lawyer - that drawing stricter legal boundaries will actually contain the turmoil.
25. In conclusion, this is the right moment to have an open debate on this subject, within the community, within the ECN and within our authorities. Based on a thorough understanding of consumer behaviour, rather than thinking within the system.