CCI lens on manufacturers dictating selling price to dealers

Re-sale price arrangements between manufacturers and distributors are under the Competition Commission of India scanner.

Known in the industry as ‘re-sale price maintenance’, the arrangement is common in the consumer durables and electronics space especially on products sold through e-commerce sites.

Under the arrangement, a re-seller (a retailer or a distributor) cannot sell a product at a price lower than that set by the manufacturer.

This arrangement protects the profit margins of both the manufacturer and the re-seller often to the detriment of the consumer.

In fact, in some developed markets, this practice is frowned upon and seen as “unlawful” and “anti-competitive” conduct as it could mean consumers ending up paying more.

This is why the CCI has decided to step in.

Re-sale price maintenance arrangements are usually frowned upon by competition regulators as these mechanisms tend to support the manufacturer or retailer cartels.

“Re-sale price maintenance arrangements generally do not favour consumers. We are looking into such arrangements from the specific aspect of whether they violate the competition law or not,” says Ashok Chawla, Chairman of CCI.

Normally, branded goods are subject to the re-sale price maintenance arrangement. In India, this concept has gained currency with consumer goods firms selling their products through e-retailers.

Many manufacturers set a minimum price for e-retailers to ensure that their products do not get caught in the massive discounting resorted to by the e-commerce giants, especially those following the inventory based, and not the marketplace, model. Manufacturers fear massive discounts affect their brand image.

Chawla said the CCI had received complaints on the existence of such arrangements and was looking into them. Asked if the complaints involved e-commerce portals, he said they related to both online as well as offline distribution channels.

Asked about the other cases the CCI has decided upon and its broader role, Chawla said the objective of the competition regulator was to nurture competition and ensure that the market functions better; CCI was not there to just levy penalties.

In the past six years, the competition watchdog, which has looked into some 600 cases, has levied penalties of ₹13,000 crore. Of this, only about ₹100 crore has been actually paid. The penalty amount goes to the Consolidated Fund of India.