Competition Law in Germany: Informal guidelines of the Federal Cartel Office regarding price maintenance in the food sector

21 July 2010

Dr Martin Jäger

The Federal Cartel Office currently investigates practices potentially leading to price maintenance in the food sector in Germany. The investigations have been initiated in January this year with dawn raids at the offices of companies in the food retail, drugstore and pet supplies sectors as well as of manufacturers of branded consumer goods (see our April 2010 Food Law Digest).

In the course of these proceedings the Federal Cartel Office rendered a letter to the companies concerned by the investigation in which it outlines its preliminary assessment of certain practices in negotiations between manufacturers and retailers/wholesalers potentially leading to anticompetitive effects. In this letter the Federal Cartel Office provides some guidance on a series of competition law aspects of vertical agreements between manufacturers and retailers. Although these guidelines have been issued in specific proceedings and have not been officially published, the guidance letter provides a first impression of the current thinking within the Federal Cartel Office regarding some typical types of practices potentially leading to anticompetitive vertical and/or horizontal restraints in the food sector.

The Federal Cartel Office identified certain distribution practices which are per se prohibited, namely:

  • Determination of retail prices or minimum price levels;

  • Agreements of maximum margins or price reductions on a given price level;

  • Support of marketing measures of retailers by product specific payments or rebates granted in consideration of specific promotional prices;

  • Sliding price maintenance e.g. margin compensations; and

  • Order forms with fixed retail prices or fixed minimum price levels.

A difficult issue dealt with in some length is the application of indirect price maintenance measures. Whereas, recommended retail prices are as such admissible, the Federal Cartel Office is very alert as regards any direct or indirect measures to actually apply the recommended prices, e.g. by interruption of supply, delisting, reduction of promotional activities, rebates, kick-backs and margin compensations.

Other practices are considered to carry considerable risks of infringing competition law so that they have to be assessed thoroughly, such as:

  • Subsequent discussions of retail prices between manufacturer and retailer;

  • Participation of retailers in price monitoring systems of manufacturers;

  • Compilation, preparation or requirement of price comparison lists;

  • Price calculation aides or instructions for the determination of retail prices; and

  • Printing of price recommendations on the product packing.

Furthermore, the Federal Cartel Office outlined potential interdependencies between vertical distribution practices and horizontal effects on the determination of prices by retailers. This is particularly true in the case of triangular relationships between manufacturers and retailers enabling communication of the retailers via the manufacturer on prices or other relevant competitive parameter (so-called “Hub & Spoke” situation). This is namely relevant in the following situations:

  • Transparency of supply conditions ;

  • Most favored customer-clauses intended to establish a uniform price level;

  • Communication of price-relevant information of other retailers via the supplier;

  • Complaints to manufacturers by retailers regarding the retail prices applied by competing retailers; and

  • Participation in price monitoring systems, e.g. reporting obligations for price deviations of retailers.

Although the Federal Cartel Office stresses that the letter is of preliminary nature and that the statements are not necessarily transferable to other situations outside of the current proceedings it throws light on the scope of the investigations in the German food sector and the practices which are considered by the Federal Cartel Office to potentially infringe competition law. Against this background it is recommendable to thoroughly analyse the own distribution practice on the basis of the guidance letter and to assess whether there are practices in place which are specifically addressed in the letter.

Authors