On 6 October, the Commission held a conference on its Preliminary Findings of the E-commerce Sector Inquiry: the entire day was made available via webcast (no geo-blocking for the Commission…).
This follows the publishing of its Preliminary Report last month (which we coveredhere and here). The conference was an opportunity for those working in industry, academia and competition authorities around the EU to comment on the findings. A list of the speakers can be found here. We have provided a summary of the main issues raised below.
In today’s digital world, selective distribution systems are used for a very wide range of products and they are no longer limited to those products which are accompanied by a service. It was suggested that using selective distribution to ban the use of third party platforms raised important competition law and political questions.
In the context of consumer goods, selective distribution can be beneficial, allowing brands to maintain consistency across retail channels and strengthening consumer protection. However, it was noted that they can be detrimental to SME retailers, which often struggle to gain market share as a result of restrictive distribution practices. The need for clear and objective criteria was also raised as an issue. Some industry representatives called for greater parity between online and brick and mortar stores in terms of the products they are allowed to sell. This view was not shared by all – others were quick to emphasise the differences between online and physical stores and the benefits of differentiating between these types of sales.
Turning to the media content sector, the focus was on the use of exclusivity which gives rise to a similar dynamic to selective distribution in the goods economy. On the one hand, the competition for exclusivity among media organisations has been a driver of innovation and investment in the production of new technologies (e.g. Ultra HD TVs) and has facilitated the creation of more choice among content providers. On the other hand, distribution contracts are often awarded for lengthy terms and – in the Commission’s view – certain terms risk giving rise to anti-competitive effects. One example which was discussed was the use of automatic renewal provisions, extending the duration of exclusivity, however, such terms may be justified on the basis of the considerable investment needed to create new content. Such terms will need to be considered on a case-by-case basis.
Cross-border access to content
The paradox that 50% of EU citizens shop online but only 15% shop cross-border was raised as an important issue. The volume of complaints about geo-blocking directed to National Competition Authorities varied significantly. Opinions differed on the prioritisation of geo-blocking and territorial restrictions generally.
The discussion on consumer goods focused on the ability to sell across borders. Legal fragmentation and lack of harmonisation, personalised products and distribution capacity were all identified as reasons why cross-border sales may be limited. In addition to technical and logistical barriers, selective distribution systems were also considered to play a part in the availability of products in specific regions.
Geo-blocking occupied a large part of the discussion on online content distribution. Industry representatives argued that the territoriality identified in the report is not the result of active efforts by distributors to fragment the market. Instead, it was said to reflect diverging national demands and differences in the level of investment that broadcasters are prepared to make in each territory. The possibility of pan-European licences was dismissed as being prohibitively expensive as well as having the potential to be anti-competitive.
Issues surrounding pricing and pricing mechanisms were raised throughout the day. There was general agreement that the competitive impact of such mechanisms in e-commerce will depend heavily on the level of market power of those imposing the prices.
An interesting point on price discrimination was raised in the context of consumer goods. If price discrimination is banned, firms adapt by changing their pricing and product strategies, which could harm or benefit consumers depending on the market. It was noted that vertical restraints could be used strategically by suppliers in the marketplace.
Pricing mechanisms were also raised as a concern in relation to online digital content. It was suggested that it might be necessary for the Commission to examine restrictive payment structures in contracts and perhaps regulate the area to ensure a level playing field between mobile platform providers and application developers.
The Commission has invited stakeholders to submit comments on its Preliminary Report by 18 November 2016. It remains to be seen whether the commentary put forward during the conference and the divergence of industry views will be reflected the Final Report. Past sector inquiries tend to suggest that the changes between the preliminary and final reports may be few and far between…