EU Commission Published Preliminary Report On The E-commerce Sector Inquiry

The European Commission started a sector inquiry into e-commerce on 6 May 2015 as a part of its Digital Single Market Strategy. On 15 September 2016 the Commission published a Preliminary Report (Report) which provides initial findings of the sector inquiry. During the launch of the Report, the EU Competition Commissionaire Margarethe Vestager mentioned the freedom of online sales strategies of the companies, and she emphasized the role of competition authorities to check whether those practices comply with competition laws. She also stated that companies should read the report when reviewing their distribution contracts.

The Report provides an overview of the main market trends recognized during the sector inquiry and identifies possible competition concerns. With the Report, the Commission wishes to trigger a facts-based exchange of views with stakeholders. In fact, stakeholders are invited to comment on the findings of the sector inquiry during the next two months.

During the inquiry, the Commission contacted more than 1800 companies operating in e-commerce of consumer goods and digital content, and it has reviewed approx. 8000 distribution contracts. The findings verify that e-commerce is an important drivers of price competition through price transparency and confirms that online sales increase consumer’s choice and their ability to find the best deals. As expected, the Report also identifies certain business practices that may limit competition.

Concerning online sales of consumer goods, the Report finds that while price is a key parameter of competition for retailers, product quality and brand image are key for manufacturers. Therefore, manufacturers adopt a number of business practices in order to better control the distribution of their products and the positioning of their brands. Selective distribution systems have been widely adopted by the manufacturers in order to distribute their sales only through pre-selected authorized sellers. In addition, the manufacturers have been increasingly selling their products through their own online channels. Moreover, manufacturers progressively use other contractual sales restrictions in their distribution agreements. The Report states that as follow up to the sector inquiry, it may become necessary for the Commission to examine certain clauses restricting online sales—in particular in selective distribution agreements—more closely.

On the other hand, resale price maintenance seems to be of the practices that manufacturers and retailers may use in response to the increased online price competition.

By observing a minimum retail price, both manufacturers and retailers may minimize the impact of price erosion, thus protecting both the level of the wholesale price the manufacturers can ask for the product and the profit margins retailers can expect.

Moreover, the Report also draws attention to increased price transparency through price monitoring software which may facilitate collusion between retailers.

Concerning the digital content, the Report states that the terms on which rights are made available to digital content providers are one of the most important drivers of competition. However, as the Report notes, online distribution of content and demand for online rights does not seem to have been changed the way in which right holders license their rights. The Report also detects that current copyright licensing agreements are complex and often exclusive.

Regarding to territorial contractual restrictions, the Report shows that a large majority of digital content providers are required by rights holders to restrict access to their online digital content services for users from other Member States by means of geo-blocking.

Finally, the Report indicates that the Commission will assess on a case-by-case basis, having regard to the characteristics of the specific product and geographic markets, whether certain licensing practices may restrict competition and whether enforcement is necessary in order to ensure effective competition.

The Final Report of the sector inquiry is expected to be published in the first quarter of 2017.

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