The European Commission publishes its preliminary report on the e-commerce sector inquiry

The European Commission (the “Commission”) published its preliminary report on the e-commerce sector inquiry on 15 September 2016.

Key preliminary findings in relation to e-commerce in goods include:

  • Price transparency has the following implications:
    • It directly affects customer behaviour, allowing customers to instantly compare pricing and product information across sales channels, although it may also result in free-riding across sales channels.
    • It leads to increased price competition, affecting both online and offline sales.
    • It allows companies to monitor each other’s pricing and adjust their own pricing accordingly.
  • As a reaction to increased online price transparency and price competition, manufacturers seek ‘tighter’ control over distribution, aiming to better control price and quality of distribution. For example, there is an increasing tendency for manufacturers to open their own online retail shop.
  • There has also been an increase in the use of selective distribution systems, as a way of obtaining better control over distribution quality and (indirectly) price.
  • Manufacturers increasingly use vertical restraints in order to better control the distribution of products, including pricing restrictions, restrictions on selling or advertising through certain online channel or restrictions on selling cross border.
  • The large market shares and resulting strong negotiating positions of certain large retailers exercises pressure of manufacturers to guarantee such retailers profit margins, compensate for losses/lower than expected profits, or otherwise ensure a certain minimum price is applied throughout the distribution network.

The Commission has stated that it may, as a follow up to the sector inquiry, further investigate certain practices such as pricing restrictions, restrictions on online sales and territorial restrictions. 

Key preliminary findings in relation to e-commerce in digital content include:

  • One of the factors of competition in digital content markets is the availability of licenses from copyright holders and contractual restrictions in licensing agreements are the norm.
  • Exclusivity is common in relation to licensed rights as access to exclusive content increases the attractiveness of the offer of digital content providers.
  • Almost 60% of respondent digital content holders are contractually required to geo-block and geo-blocking is more prevalent in relation to film, sports and TV programmes.
  • A substantial number of licensing agreements are concluded for long durations or include clauses that facilitate the agreements to continue.

The Commission queries whether some of these licensing practices may make it more difficult for new online business models and services to emerge and for new or smaller players to enter the market or expand their activities. The Commission intends to investigate on a case-by-case basis whether enforcement action is necessary.

The Commission has carried out a consultation regarding its preliminary report and it is anticipated that the final report will be published in the first quarter of next year.

Contact our experts for further advice

Maliha Carey, Gustaf Duhs

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