The View from England

Price Fixing Cartels

As the rise of the bedroom sellers continue, a new problem has arisen. Suppliers have gotten into the act. Now whilst some suppliers do not care who they sell to, nor how low retailer margins go, other suppliers are more and more concerned about maintaining the quality value of their products. They do not like seeing their brands cheapened by heavy discounters. So they are looking at ways to stop this from happening. Some of these ways however need to be treated with great caution.

The most obvious thing for a supplier to do is to stop selling to those retailers who sell online. Other suppliers allow online sales, but not on Amazon or Ebay. These practices will naturally tend to stop the small hobby seller and likewise tend to reduce the volume of sales, but it will increase the margins of what is sold and maintain the perceived quality of the brand. For some suppliers this is enough.

The problem I am currently having is a couple of my suppliers going one step further. They have asked me to sign a contract stating that I will not sell their goods at below the Recommended Retail Price (RRP). This is retail price fixing. As this is price fixing in a vertical market, there is some possibility that they can get away with it in the US, but in the EU and especially in the UK it is very very illegal. Companies can get fined up to 10% of their global turnover and individuals can get up to 5 years in jail as well as a fine.

It is generally the smaller suppliers who attempt this. Mainly in ignorance of the law. They are doing their best for their brand and trying to combat the problem of over discounted products cheapening their brand image. The problem being that they, and some of their retailers, may all sign this agreement and effectively form a cartel. This is a group of two or more organisations who collectively agree not to sell below a certain minimum and thus reduce price competition. Once this is done, government organisations can fall heavily on them. In the UK the job of enforcing this falls on the Office of Fair Trading. They have been given far reaching powers. Any organisation suspected of being in a cartel can be raided and documents, e-mails, computers etc. seized at no notice. The consequences of such a raid on a small business can be more devastating than any fine subsequently imposed. Just ask yourself, if a law enforcement officer came into your office NOW and took all your computers for the next few months, how long would your business survive? Do you have full off site backups of all your accounts etc?

If these suppliers had stopped at saying general things like “sellers should be working on quality and detailed descriptions, inventive and creative keywords and titles, quality and unique images, and proactive marketing, advertising and promotions of the products”, then I would wholeheartedly agree. But they went one step further and said “Prices should be at least the RRP stated on the website”, and this crosses the line between what is lawful and what is not. Their ignorance of the law stops me from signing the agreement.

In order to promote products properly, have good photos and descriptions etc. you have to invest time and money. This would automatically eliminate the cheap hobby seller so there should be no need to price fix. The requirement to add value and quality would enable the supplier to have a reason to stop supplying the hobby seller without needing to mention price. By making the mistake of price fixing, the supplier is putting not only their own business at risk but also all the retailers who sign the agreement.

In not signing the agreement they have subsequently refused to supply me. Thus giving yet more evidence of price fixing to the authorities. I just loose a few lines of stock, they could loose everything.

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