The new Regulation and Guidelines on Vertical Restraints Laurent Flochel IDI Conference, Torino, 11 June 2010

What’s new? Clarification on the absence of prohibition per se Double market share threshold (30%) Internet Debate on RPM Category Management Upfront Payment

Evaluation Methodology Relative convergence with decisional practice for other conducts  Global trade-off between Positive effects (pro competitive, efficiency gains) Negative effects (anticompetitive) The key factors : Efficiency gains allowed by the restraints Inter-brand vs intra-brand competition and the link between the two. but criteria of article 101§3 : Specific efficiency gains Restrictions necessary to achieve the gains Consumers must receive a fair share of the gains No elimination of competition

The key role of inter-brand competition Market power of parties (suppliers and retailers) measured by market shares But a long list of other factors (size of competitors, entry barriers, product differentiation, etc…) Ambiguous effect of having strong competitors: Strong inter-brand competition (positive to outweigh negative effects of a reduction of intra-brand competition) Tacit collusion : reduction of intra-brand competition can facilitate collusion between suppliers (cumulative effects)

Market share threshold Intermediate market R Market share on the intermediate and not on the downstream market (difference in the geographical dimension of the retail market) Cumulative effect : market share is calculated on « parallel networks of similar vertical restraints »

Single branding Risk of foreclosure of competing and potential suppliers if the retailer is essential (or through cumulative effect) Risk of tacit collusion if cumulative effects Competition can be strengthened in the case of single branding if there are enough retailers (higher incentive to cut prices) Market share of the retailer(s) is relevant : On the intermediate market (opportunity constraint for the supplier) On the downstream market (competition on the (geographical) relevant market)

Exclusive distribution (exclusive territories) Softens intra-brand competition (net effect depends on the intensity of inter-brand competition) Risk of foreclosure of other distributors Risk of facilitating tacit collusion between suppliers by facilitating detection of deviation and limiting the risk of price cuts at the retail level True if few suppliers with parallel networks Even more true if suppliers use the same (essential) retailers => Market share of the retailer is relevant

Exclusive supply (only one retailer) Risk : foreclosure of other retailers Relevant criterion : market share of the retailer on the downstream market cf §194: « Where the market share of the buyer on the upstream market does not exceed 30 %, significant foreclosure effects may still result, especially when the market share of the buyer on his downstream market exceeds 30 % and the exclusive supply relates to a particular use of the contract products. (…)”

Upfront access payment Possible anticompetitive effect: foreclosure of other distributors (can induce the supplier to channel its product through only one or a limited number of retailers) market share of the distributor is relevant, on the intermediate market

Laurent FLOCHEL 21 avenue de l’opéra 75001 Paris France lflochel@crai.com +33 1 70 38 52 78