The Tribunal of the Administrative Council for Economic Defense (CADE) dismissed, in August, an investigation regarding an alleged practice of resale price maintenance (RPM) in the Brazilian relevant market for watches. It concluded that the investigated company did not have market power. The investigation concerned the alleged implementation of a commercial policy that imposed on online resellers a minimum profit margin, with threats and retaliation in case of non-compliance. Although it did not condemn the investigated company, CADE signaled to the market its opinion about RPM practices.
RPM occurs when a company establishes a minimum, fixed or maximum resale price to distributors or resellers of its product, taking away their freedom to determine the price to their customers. Indirect practices such as establishing a profit margin can also be deemed as RPM.
RPM can be expressed in writing – established in an agreement or communication that indicates the price imposed and the sanction for non-compliance – or implicit – when the supplier constrains distributors or resellers to adopt the indicated prices.
CADE's main concern in such cases is the reduction of intra-brand competition, that is, the elimination of rivalry between distributors or resellers of a certain product/brand, which tends to reduce prices.
In this recent decision, CADE reiterated that the mere suggestion of a resale price (minimum or maximum) and maximum resale price maintenance raise less competition concerns than minimum resale price maintenance.
In addition, CADE kept the relative presumption of illegality of minimum resale price maintenance, a stricter position that has been adopted since 2013. In minimum RPM cases, the Brazilian antitrust agency assumes that the practice has an anticompetitive purpose and reverses the burden of proof: it is up to the investigated company to prove that such presumption is incorrect.
The competitive assessment of RPM practices comprises the following steps:
- to identify whether the conduct occurred;
- to define the relevant market and to assess whether the company under investigation has a dominant position/market power;
- identify the potential or actual competitive harm of the practice (e., the negative effects to the market); and
- to identify the economic rationale, efficiencies and adequacy of the practice to achieve the desired goal (e., its justification and pro-competitive effects).
The investigation may be dismissed if the practice did not actually take place or the investigated company did not have market power – which, in practice, would prevent it from potentially harming the market.
If, however, the company has market power, to avoid a condemnatory decision it will be necessary to prove that the conduct was supported by economic rationality (i.e., a legitimate goal) and produced clear benefits to competition.
Given this rigorous approach to the legality of minimum RPM, CADE pointed out that companies should be cautious when structuring their commercial policies. They must establish a well-defined and delimited scope, supported by robust economic analyses, based on the most complete data possible, that support the desired economic rationality and the alleged economic efficiencies.