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Fender fined for anti-competitive behaviour

Hit hard

The Competition & Markets Authority (CMA) has fined Fender Musical Instruments Europe Limited a whopping £4.5 million for price fixing. Over five years, it was found to have restricted online retailers’ ability to resell their guitars at a discount, pressurising those who did not comply to raise their prices. This type of price fixing, known as resale price maintenance (RPM), is prohibited under the Competition Act 1998 on anti-competitive agreements.

No exceptions for small businesses. It’s the big cases that hit the headlines, but this prohibition applies to all businesses, large and small (see The next step ).

RRP v RPM

Manufacturers often set a recommended retail price (RRP) for their products. As well as reflecting the cost of the item, it can factor in considerations such as brand perception and how exclusive or otherwise the product is. Suggesting an RRP does not breach competition law.

In setting a resale price, the retailer’s own strategies come into play and it may want to set a lower price, whether to remain competitive, as a loss-leader to generate further sales or to shift old stock. A manufacturer breaks the law if it stops retailers from doing so because this prevents, restricts or distorts competition in the UK market.

No formalities needed

There does not have to be a written agreement or formal RPM policy for the CMA to investigate. For example, a light fittings manufacturer was fined £2.7m in 2017. It knew RPM was illegal, so did not put anything in writing; instead, its policy was communicated to retailers verbally or agreed at trade shows.

Retailers beware

Going along with RPM, even under pressure, potentially involves the retailer in the “cartel”. To avoid breaking the law, retailers should remember:

• manufacturers cannot dictate the resale price, whether explicitly or implicitly
• if you go along with an RPM policy, you could be breaking the law; and
• if a manufacturer tries to set resale prices, report them to the CMA.

What if you are investigated?

Any type of business can be investigated by the CMA, and the key to minimising the damage is co-operation. Non-compliance can itself result in a fine, as Fender found out when a senior member of staff falsely claimed to have disposed of his old notebooks. This resulted in a £25,000 fine.

Tip. If your business is ever under investigation, make sure all your staff are aware of the importance of complying with the CMA.

Damage control. If a breach of competition law is uncovered, co-operation with the investigation can also make a big difference to the fine. Fender’s fine could have been far higher: it was discounted by 80% for admitting the breach, co-operating and settling out of court.

For a link to the CMA’s guidance, visit http://tipsandadvice-business.co.uk/download (CD 21.10.04).