Decision by the Serbian Competition Authority from 2 July 2021 determined and sanctioned price collusion between the importer and distributer of consumer electronics (Roaming Electronics) and retailers (XLS, Gigatron, Emmezeta i Technomedia), which was found to represent breach of competition law known as retail price maintenance (RPM).
On the same day another decision was issued against Comtrade Distribution and retailers (Tehnomija, Gigatron, Tehnomedija, Emmezeta and XLS), which pertains to the same type of breach on the same product market, with regard to Tesla electronic appliances. Said decisions are the latest case law of the Serbian Competition Authority on RPM, or restrictive agreements in general.
In both cases the Commission went a step further from the previous case law, since it has explicitly determined that defining and communicating recommended prices between market participants can amount to a price collusion and by that virtue a restrictive agreement, without even examining the effects of this practice on the competition. In other words, ”recommended prices” (which are generally permitted), under certain circumstances are no longer considered ”recommended” but rather mandatory for the retailers.
In the Roaming Electronics case, mainly based on e-mails acquired during dawn raids, the Commission concluded that the objective of the participants in the (implicit) restrictive agreement was to maintain retail prices at the agreed level, thus maintaining the agreed mark-up and preventing price competition between retailers. Parties to the agreement generally complied with the recommended prices, either under pressure from other participants (which was typically exercised through the supplier – Roaming Electronics), or enticed by special benefits offered in case of adherence to the recommended prices, or simply following their own business interest not to lower prices when they can rely that other retailers will act in the same manner.
Transparency of the market contributed to the conclusion that ”recommended prices” were actually mandatory, as it facilitates monitoring of all prices (especially in case of on-line sales) and enables parties to react in case of deviation from the agreed prices. In the particular case, this was additionally made easier by using special software for monitoring and analysis of retail prices.
Similar type of breach and facts of the case were determined in the case against Comtrade Distribution, although it appears that it was less apparent that the objective of price collusion was to prevent unilateral price cuts in this case. This, however, was of no relevance for the outcome, since it was sufficient to determine that retailers were not independent when determining prices, and that retail prices were subject to monitoring, analysis, and agreement between the parties.
Notwithstanding that Commission’s decisions are another step forward when it comes to sanctioning breaches of competition, it cannot be overlooked that monetary penalties imposed are rather low, given the marker position of the parties and the fact that this kind of conduct is qualified as severe breach of competition in Serbian legislation (and that the Commission found aggravating circumstances in both cases). Specifically, the Commission imposed monetary penalties on Roaming and Comtrade which amount to 0,2% of their respective annual revenue (whereas the legal maximum is 10%).
Moreover, in both cases the Commission failed to provide a detailed explanation of the methodology used for calculating fines, in line with the Guidelines for Application of the Decree on Criteria for Determining the Amount of Fines for Breach of Competition (which was also the case with some previous decisions).
Although the fines are not negligible in absolute terms, it is questionable whether they are sufficient to have a deterrent effect, given that conducts that breach competition laws can be very lucrative. One can only speculate on the reasons behind this apparent trend of lenient penalties, and whether this is a deliberate attempt to implement anti-trust laws in a way which does not cause too much ’’harm’’ on the market participants; or perhaps the Commission implicitly accepted arguments by some of the parties that the fines should be determined based on revenue accrued from specific products as opposed to the total revenue (although the Law does not provide basis for this).
Another important takeaway from these and previous cases involving RPM (especially Yuglob, Keprom and others) is the importance of familiarity with basic principles of anti-trust laws by the market participants, i.e. their managers and employees. Namely, as the Commission is striving to detect and penalize less apparent and obvious breaches of competition, margin for error for market participants is becoming smaller. This is not to say that the breaches in question were caused by error or ignorance, since it is quite apparent that at least some of the participants acted with intent and in an attempt to accrue extra profits. However, it is also apparent that there are errors which can be avoided, and that certain legitimate business goals can be achieved in adequate ways and with less risks involved, if managers and employees are previously acquainted with principles of anti-trust laws.
More to the point, the fact that employees in the aforementioned entities communicated via e-mail quite openly (both internally and with other participants) about issues regarding price adjustments, guaranteed mark-up etc., in addition to the intent and goals of the parties, also clearly demonstrates the lack of understanding about the types of communication and collusion which can be deemed as breach of competition.
In the light of Commission’s decisions, market participants should especially consider certain important issues going forward, and consequently adopt adequate procedures and guidelines for the management and employees. Issues which should be especially emphasized are the following:
- Which contractual provisions pertaining to prices are permitted and which are not?
- What type of information exchange and reporting is permitted?
- In which way recommended prices should be communicated not to create the impression that they are mandatory (should it be explicitly stated that the recommendation is not binding?
- Is it permitted to deliver price lists with retail prices already filled out etc.).
- How should the retailer react in case of pressure from the distributer to adhere to recommended prices, in order to avoid becoming an accomplice?
- Is it permitted for a distributor to provide incentives in case of adherence to recommended prices?
- Is it permitted for the distributor and retailer to coordinate on occasional promotional discounts, with support from the distributor in form of price reduction?
Damjan Despotović, partner
This text is for informational purposes only and is not a legal advice. Feel free to contact us if you need additional information.