Explore market sharing and resale price determination in competition law. Learn about prohibited practices, legal exemptions, and their impact on fair competition.

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What is a Group Exemption?

A group exemption provides legal immunity for certain agreements, decisions, or coordination within a specific industry or sector under competition law. These exemptions allow businesses to collaborate under predefined conditions without violating antitrust regulations. To qualify for a group exemption under Article 4 of the Law on the Protection of Competition (LPCL), agreements must satisfy these criteria:

Encourage Innovation: Foster new developments, advancements in production or distribution, and technical or economic progress.
Benefit Consumers: Ensure the resulting improvements positively impact consumers.
Preserve Competition: Avoid eliminating competition in a substantial part of the relevant market.
Proportionate Restrictions: Limit competition only to the extent necessary to achieve innovation and consumer benefits.

Failure to meet these conditions disqualifies agreements from benefiting from a group exemption.

Restrictions Excluded From Group Exemption

Article 4 of Law No. 4054 on the Protection of Competition outlines specific prohibitions, including restrictions that undermine market fairness. Two key forms of these prohibited restrictions are market sharing and resale price determination.

Market Sharing

Market sharing involves dividing a market among competitors based on geographical regions, customer groups, or product types. This practice undermines fair competition, reduces consumer choices, and often leads to inflated prices.

Geographic Market Sharing: Businesses allocate specific territories to prevent competition within these areas. For instance, one company may operate solely in Region X, while another serves Region Y. Consumers in these regions are left with fewer options.
Customer Segmentation: Companies divide customer bases to avoid competition. For example, one firm might exclusively target large enterprises, while another focuses on small businesses.
Product Specialization: Competitors agree to produce distinct categories of products. For example, one company may manufacture smartwatches, while another produces tablets. This arrangement limits product diversity for consumers and stifles competitive pricing.

By eliminating competition within designated zones or groups, market sharing directly harms consumer interests and violates competition law.

Resale Price Determination

Resale price determination occurs when suppliers dictate the selling price of their products to buyers, stripping buyers of the autonomy to set their own pricing strategies. Such agreements are explicitly prohibited under Article 4 of Law No. 4054.

Suppliers may set a maximum price or recommend a price, provided these do not effectively become fixed or minimum prices through direct or indirect pressure. Any coercion — such as financial incentives or penalties — that forces buyers to adhere to a recommended price constitutes a violation.

Examples of Violations:

Direct Pressure: A tire manufacturer stipulates that distributors must sell tires at a specific price, disregarding the distributors’ discretion.
Indirect Influence: Offering discounts or imposing penalties based on compliance with recommended pricing.
Punitive Actions: Delaying deliveries or terminating contracts to enforce adherence to set prices.

To maintain compliance with group exemptions, suppliers must:

Clearly label prices as maximum or recommended in price lists and product labels.
Avoid imposing restrictions that indirectly transform recommended prices into fixed or minimum prices.

Consequences of Resale Price Fixing

Resale price fixing disrupts competitive dynamics and limits consumer benefits. When sellers are constrained by fixed pricing, they cannot adjust their prices based on market conditions or competitive pressures. This inflexibility often results in:

Higher Prices: Consumers face inflated prices due to reduced competition.
Stifled Innovation: Businesses have little incentive to innovate or improve their offerings.
Legal Repercussions: Companies engaging in resale price fixing face penalties under Article 4 of the law.

Importance of Upholding Competition Laws

Ensuring compliance with Competition Laws fosters a healthy market environment. By prohibiting practices like market sharing and resale price determination, regulators protect consumer interests, encourage innovation, and maintain competitive fairness.

Companies must remain vigilant about their agreements and pricing strategies to avoid unintentionally violating these laws. Transparent practices and adherence to legal frameworks not only ensure compliance but also build consumer trust and market credibility.