Are loyalty schemes now seen as an anti-competitive practice?
First published by Admin on April 14, 2017 in the following categories: Investigations and tagged with cma
The Competition and Markets Authority (CMA) recently opened a public inquiry for suspected anti-competitive conduct relating to loyalty schemes.
Although the Gov.uk website doesn’t detail masses of information on the investigation, there’s a suspected breach of UK and EU competition laws in relation to loyalty-inducing practices in consumable goods.
The investigation opened on the 16th February this year. The CMA has allowed a period of time from February to May to gather information, including gathering formal or informal information requests and parties’ responses. The competition watchdog will then have to make a decision in June whether to proceed with the investigation or to close the investigation.
Statement of objections?
There’s no indication whether the CMA has reached the view that there’s sufficient evidence of an infringement of competition law which is why it’s crucial to undertake these initial investigations before they issue a statement of objections.
A statement of objections is usually proposed by the CMA following an investigation. They’ll normally decide whether or not there has been an infringement (in this case) of Chapter II of the Competition Act (CA) and Article 102 of the Treaty on the Functioning of the European Union (TFEU). Section 31 of the CA requires the CMA to give ‘written notice’ to the persons likely affected i.e. the company or business that has likely or allegedly breached competition laws. This will then allow them to make representations in defence.
Precedent
The European Court of Justice’s (ECJ) historical judgments have showed their strong support to regulate loyalty and pricing practices implemented by companies in a bid to prevent anyone from holding a dominant market position. This view is shown in the ECJ’s judgment where they rejected an appeal made by Tomra Systems ASA (Tomra). In the 2010 judgment, the ECJ upheld the conclusions of the European Commission that Tomra’s customer loyalty and rebate arrangements infringed competition rules.
The ECJ’s decision highlighted that companies who have a dominant market position can be more likely to abuse that position where they give a loyal discount to their customers. A “loyalty” discount can give the company a financial advantage over their competitors. This is achieved as the company can give their customers a discount on the condition that the customers sources all or most of their products/services from the company in question.
By way of an example, Tomra were originally fined €24 million (approximately £20 million) by the European Commission. Tomra reportedly abused their dominant market position across the market for their reverse vending machines. The machines collected used cans/containers and then reimbursed the consumer depending on the type of container. Among other points of law, the Courts upheld the European Commission’s reasoning for the competition law infringement. Tomra created a system where customers were entering into a ‘retroactive rebate agreement’ by providing their used cans/containers for reimbursement.
Academics’ viewpoint
Giulio Federico believes that loyalty-rewarding pricing schemes reinforces a company’s dominant market position and therefore is detrimental to the consumer. On the other hand, academics like Caminal and Claici argue that such schemes can “enhance competition” by generating lower average transaction prices and higher consumer surplus.