Competition and Across Platform Parity Agreements

Roundtable

Date: 28 October 2015
Location: OECD, Paris

About

Across Platform Parity Agreements are agreements between suppliers and retailers that specify a relative relationship between prices of competing products or prices charged by competing retailers.

These agreements are a special type of price relationship agreements. Price relationship agreements include a wide category of contractual clauses whereby a seller’s price is related/tied to another price, which can be the price offered by other sellers for the same product or similar competing products, or the prices offered by the same seller for the same products to other buyers.
Across Platforms Parity Agreements are characterised by two elements: (i) a vertical element, because they involve firms at different levels in the value chain, and (ii) a horizontal element, because they link prices of competing goods and/or of competing retailers. Another peculiarity is that the parties to such agreement are suppliers and retailers, while buyers are not and are often not even informed of their existence, even though these agreement concerns the prices the buyers are paying.

The term Platform arises from the fact that often the retailers involved in these agreements are online selling platforms, which can either act as traditional retailers - who pay a wholesale price for a good to the supplier and then set their own retail price, or can be agents – who sell the product on behalf of the supplier at the price this determines and only retain a fee for their service. However, there have been instance of similar agreements between suppliers and brick and mortar retailers.

Despite its reference to Across Platforms, these agreements can be requested by retailers, who requires their supplier not offer their products through other retailers at a lower price (i.e. the price of that supplier’s product should be uniform across different retailers/platforms), but they can also be requested suppliers, who require retailers to charge for its products the same price retailers ass for similar competing products (i.e. the price of competing products sold by a retailer should be the same).

In October 2015, the OECD held a discussion on the key competition concerns that can be raised by these agreements, as well as the benefits these may bring to consumers and how these agreements have so far been dealt with by competition authorities. A background note, a paper by Prof. Ezrachi along with contributions from the participants supported the discussion.

Key findings

There is increasing concern at online platforms using across platform parity agreements (APPAs) that prevent producers from setting lower retail prices on rival platforms that offer more competitive commission rates. This removes the incentive for platforms to compete on the commission they charge to producers and hence inflates the commissions and the final prices paid by consumers. These agreements may also prevent entry from new low cost platforms, reduce innovation, and even facilitate collusion.
There was also concern that a decision by platforms and producers to adopt an agency relationship might increase prices, and that the agreement of APPAs would help the firms to adopt such a relationship. APPAs might therefore also be indirectly responsible for price increases that occur when platforms and producers adopt an agency relationship.
Across Platforms Parity Agreements may also have efficiency enhancing effects that are beneficial for consumers. They can remove the risk that consumers use a platform to compare products and enjoy additional services (such as customer reviews), and then purchase their favoured product directly from the producer or on a cheaper platform. As a result, they can ensure that platforms are not discouraged from investing in the quality of their platform. The benefit that consumers derive from these investments and the extent to which these investments might also be protected through less anti-competitive measures is likely to depend on case specific factors.
The magnitude of the anticompetitive effects of these agreements will depend on the market power of the platform requesting the agreement. The effects may also depend on the scope of the agreement; however, the impact of the scope of an APPA on the degree of price competition amongst platforms appears likely to depend on the specifics of the case.
The discussion considered a variety of legal approaches used by competition agencies to assess APPAs. In some cases the agreements had been considered as horizontal conspiracies to fix prices. In other cases they were considered as vertical price restraints. One expert suggested that these restraints should be treated as restrictions by object, with exemptions granted where the firms demonstrate that the agreement generates countervailing efficiencies, while others argued that a case-by-case approach was required for the assessment of competitive effect, and that targeted remedies might benefit consumers.

For more, read the summary with key findings or the detailed summary of the discussion.