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Modern economy faces major challenges. Will the uncompromising fight against RPM save it?

Modern economy faces major challenges. Will the uncompromising fight against RPM save it?

In early September, I was at the IBA Annual Competition Conference in Florence. I like those two days. I extend my summer, experience a beautiful city, meet friends, and even manage an inspiring morning run. But mostly I’m going to find out what’s driving antitrust around the world. This year again, attorneys and representatives of competition authorities discussed current issues and trends in several panels. For example, this time, it was the relationship between antitrust and artificial intelligence. The topic was the application of competition law in labour markets. Experts tried to reach a consensus as to the most appropriate test for assessing the conduct of dominant undertakings. The Director-General for Competition spoke about the role of competition policy in fighting inflation.

(Un)surprisingly, for the umpteenth time, the subject of the discussion was not bid rigging nor resale price maintenance (RPM).

I agree that the fight against bid rigging is important. And I accept that in some cases, where there is not sufficient competition among brands, RPM can harm consumers. But…

In Florence, it has long been evident that many competition authorities are trying to address current social and economic issues. Is the world taken aback by the possibilities of artificial intelligence? Well, let’s see how we can use it in our business and whether it is a tool for anti-competitive conduct. Is the labour market not working? After all, it is a market like any other, so let us actively seek out and punish cartels whose removal will set this market in motion. Europe is plagued by high food prices? Let’s think about how we, as competition authorities, can really help by applying competition law and policy - if not immediately, then in the longer term. For example, by understanding the processes that lead to high market concentration, delayed pass-through of lower purchase prices to consumers, etc. And when competition authorities talk about something, other participants - lawyers, businesses, academics - need to think about it too. And finally, politicians.

I don’t believe that competition authorities that think this way are overstepping the limits of their traditional powers in competition policy or bending the basic principles of competition law in the interest of other policies. This is about prioritising the standard application of competition law and focusing active competition policy on areas that are topical and that represent a major opportunity or a major threat to society.

However, many competition authorities have rediscovered their interest in RPM in recent years. I was surprised to learn that as many as nine out of ten vertical agreements addressed by EU competition authorities are said to involve RPM - although the field of distribution is much wider! Indeed, the Czech Office for Competition Protection considers the fight against RPM one of its two priorities, has conducted a number of investigations and proceedings and imposed fines that sometimes reach the statutory limit of 10% of a company’s turnover.

One may argue that when I myself served in the Competition Authority, I also advocated a strict approach to RPM. And you would be right. At that time, I thought it made sense. It was part of an effort to put the then missing decision-making activity in motion. Frankly, I’m not particularly proud of it after all these years. The older I get, the longer I am in the legal profession and the closer I am to business, the more I am convinced that the time has come to rethink the EU policy towards RPM. The de facto per se prohibition should be replaced by an approach more suited to vertical agreements which takes into account market conditions and the actual impact of the conduct. We don’t need to accept the rule of reason system that applies in the USA straight away. It is sufficient to move RPM to the category of by-effect agreements. Or at least not to impose such draconian fines for it.

Indeed, I suspect that a tough and uncompromising approach, including huge fines, will not eradicate RPM in Europe. Why? Because banning it is simply counter-intuitive. While businesses generally understand that a cartel is evil and that abusing a monopoly is wrong (and if they do, they do so in bad faith), a significant number of manufacturers and brand owners do not really understand why they should not be able to influence the price of their goods in the retail market. After all, they themselves are interested in selling as many goods as possible to succeed in the competition, and they realise that price is an important factor. They build their brand with a vision of a certain pricing policy. They invest in product development having an idea as to how much it should cost to have a chance of success. They feel they know best what is best for long-term brand building in competition with other brands, and they do not understand why the state should have any say in it. Anyone who has ever tried to explain the prohibition on RPM to a start-up(ist) knows what I’m talking about…

Strict policy aimed at harvesting the low-hanging fruit leads to high costs for supervisors and companies. The prevalence of price manipulation efforts means a lot of management and allocation of capacity that could otherwise be focused on detecting more serious violations of law. Companies pay hefty fines and spend resources on management and desperate compliance efforts (only to find that one cannot keep a close eye on all employees anyway), which drains resources that could have been used to invest in innovation, expansion or brand building. And yet this competitive policy brings a number of negatives aspects. The most serious is the reduction of incentives for innovation and competition between brands.

I fear that competition authorities, which are experienced and well equipped in terms of material and personnel, but which deplete most of their resources in endless battles with the ubiquitous RPM and small cartels, may not have sufficient capacity to deal with the real problems and challenges of the modern economy.

I am concerned that authorities that prioritise strengthening investigative powers (such as eavesdropping) and increasing penalties used to address traditional offences over systematically acquiring economic and technological know-how and experience are losing something. Perhaps they are giving up the opportunity to be important actors in the transformation of the modern economy in global competition.

And that could ail Europe. I wish I was wrong.

On the other hand, it is never too late to take a step towards change. An old Chinese proverb says: The best time to plant a tree was 70 years ago. The second best time is today.

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