Price management in the EU – legal perspective for brands and e-shops
- 10 September 2020
The European Union has a strong legal framework protecting consumers from abuses done by companies with the Resale Price Maintenance (RPM) being strictly prohibited. But it doesn’t mean there are no ways to manage your pricing policy smartly in the EU.
The EU has an opinion of a relentless and harsh defender of consumer rights with multiple antitrust laws executed, with Microsoft and Volkswagen being among the most known companies fined for unfair competition.
Product prices are currently regulated by the Directive 98/6/EC that describes the way the price is presented to consumers. According to it, the price needs to be:
- clear and plain
- easily identifiable
- shown clearly and in a legible manner
The directive includes also straightforward instruction to mention a single unit price when using the selling price in the advertising. But considering the legal framework in the EU, the price management is not that easy as it stands in the directive mentioned above.
A directive is an EU-specific type of law, where the organization shows the effect that is to be achieved but shows no direct instructions. So while bringing the same effect in all of the countries in the EU, the implementation usually varies.
Resale price maintenance (RPM)
The resale price maintenance is the general name for practices aiming to discourage the reseller to sell below a certain price. There are several reasons to do so with protecting the brand identity as a luxury or premium one.
The Resale Price Maintenance is usually done as an agreement between the retailer and the vendor, with strict information about the price and possible fines for the infringement. Considering the EU competition law, the practice is generally prohibited, but there is a significant exception.
The EU law usually aims to benefit the consumer and so is this time – the RPM is not prohibited when the supplier aims to set the maximum price, for example, to introduce the product to the market. In this state, the vendor can set the maximum price to make it more attractive and beneficial for the consumer.
Minimum Advertised Price (MAP)
The Minimum Advertised Price seems not as harmful for the consumer as the resale price maintenance practices described above. The company is not prohibiting selling the product for the lower price, only informing the customer about that is discouraged.
But on the other hand, even if the reseller is offering the good for a lower price than the rest of the market, one cannot inform the customer about that. Considering that, the practice is limiting the consumer’s ability to make informed decisions and thus it can be harmful forcing one to choose a non-optimal offer.
By that, the MAP is considered the antitrust law infringement and is prohibited in the EU. Although there were attempts to change the EU’s approach toward the MAP with the 2014 petition issued by the Norbert Perstinger being a good example, the situation remains unchanged.
Manufacturer’s Suggested Retail Price (MSRP)
The Manufacturer’s Suggested Retail Price is generally not prohibited under the EU law, yet it is challenging to make it fully compliant. The company needs to prove that the MSRP is done for the benefit of the customer and to protect their right to buy the goods for lower prices. This approach stands in direct opposition to the goal of MSRP – keeping the reseller’s margins high and protecting the overall profitability of the company.
Algorithmic price management in the e-commerce
The algorithmic price management is a relatively new way to approach the challenge of price management at all. The problem is in fact that the term itself is not as clear as these described above. The “algorithmic price management” can mean multiple things:
- Prices vary regarding the supply of production materials
- Prices vary regarding the demand for the particular good
- Prices vary regarding the user who is purchasing the particular good
There are multiple outcomes of algorithmic pricing for customers. With the increasing popularity of this technology, companies need to be cautious about the possible antitrust law violation.
Digital price cartels
One of the possible outcomes is that companies may enter a digital form of a price cartel using algorithms that aim to optimize the price of a good or service. An interesting example comes from Luxembourg and the case of Webtaxi. The company was using the algorithm that boosts the efficiency of the service and counted the price by all taxi companies in Luxembourg ended in a subtle form of the price cartel, yet it was a benefit for the customer in the end. Thus, the company was not fined.
On the other hand, though, there was also a case of Amazon poster sellers. The vendors agreed to set algorithmic prices to never go below a certain level, effectively delivering a digital version of a price cartel. Although there was a pricing competition and the customer had a choice, the price never dropped below a particular level, although it would probably do without the existence of the agreement. Considering that, the EU named it a price cartel and fined the companies.
Making the price flat disables the user’s ability to purchase a good from the vendor offering the most suitable price.
From the EU point of view, the key is in spotting the sign of making agreements between companies that would have hurt the consumer. And this is the key to smart price management in the EU.
Smart price management in the EU legal framework should be done carefully and cautiously. Considering a relentless approach of the EU toward price cartels and reducing the consumer’s ability to choose the best price, companies should carefully approach the matter.
On the other hand, price competition and smart management are not prohibited at all. The company can benefit from monitoring prices and price positioning in multiple ways, for example:
- Keeping the price below the average to wipe out the competition
- Keeping the price on the average level to maximize income
- Keeping the price above the average, to build the aura of exclusivity.
The key is in making these decisions independently, without building cartels or trusts, to ensure that the customer has a choice. Being a relentless guardian of consumers’ rights, the EU is far from mindlessly attacking every company at sight.
In Dealavo we have a great experience in dealing with price management in the EU and we know how to do that safely. If you need some smart pricing in your e-commerce, contact us now, we will be happy to cooperate!