The new competition rules were presented this month by the vice president for the European Commission for Competition Policy, Joaquín Almunia, and should come into force in June this year.
Within the old regulations, selective supply and distribution agreements between manufacturer and distributor were subject to scrutiny if the manufacturer had more than a 30 per cent market share.
Such agreements can place restrictions on distributors, as manufacturers can demand, for example, that they only sell to consumers in certain geographical locations. However, these agreements can also restrict manufacturers as distributors can require that they do not supply competitors.
Extended market share rule
In recognition of the power large distributors can have within a market, and how this can potentially cut out smaller distributors and manufacturers, the Commission has now extended this 30 per cent market share rule to distributors as well.
“We have found that big distributors can also use their buyer power to impose anticompetitive contractual clauses on suppliers, to the detriment of competition and consumers,” said Almunia at a press conference in Strasbourg when he presented the changes.
“This change is, therefore, fully justified, and is beneficial for SMEs, whether manufacturers or retailers, which could otherwise be excluded from the distribution market.”
This does not mean that all selective agreements where one party will have more than a 30 per cent market share will be refused, simply that they must be assessed to establish whether they contain restrictive clauses that can be justified.
New rules on internet sales
The new rules, which replace those put into place a decade ago, also make it easier for distributors to sell over the internet.
“Once authorised, distributors must be free to sell through their websites, just as they are in their traditional shops. For selective distribution this means that manufacturers cannot limit the quantities sold over the Internet or request distributors charge higher prices for the products to be sold online,” said Almunia.
This clearly limits the possibility for suppliers to restrict online sales and the Commission refers to the regulations as ‘internet friendly’.
Furthermore, the rules clarify how online distribution will be affected by selective agreements that would normally place geographical restrictions on a distributor. According to the new regulations, it is no longer possible to terminate transactions or re-route customers purchasing online, after they have entered credit card details that show a foreign address.
According to the Commission, the new rules will ensure that consumers can buy goods at the best prices wherever they are in the EU, as well as continuing to allow companies without market power to organise their sales network as they see best.