Guitar maker fined £4.5m for illegally preventing price discounts

NEWS
Published
Jan 23rd '20
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The Competition and Markets Authority’s (CMA) has fined Fender Europe £4.5 million for breaking competition law by preventing online discounting for its guitars.

Guitars make up a significant part of the wider musical instrument sector which has an estimated turnover in the UK of around £440 million annually. Online sales of musical instruments have grown to around 40% of total sales, making it even more important that musicians have access to competitive prices online.

Today’s move follows the CMA provisional findings on the Fender case in October 2019. The guitar manufacturer has admitted breaking competition law by pursuing a policy aimed at restricting UK retailers from discounting their online prices. The firm confessed under the CMA’s ‘leniency’ and ‘settlement’ procedures. Under these, a company admits acting illegally and co-operates in return for a reduced fine, which helps make the CMA’s investigation more efficient.

From 2013 to 2018, Fender required its guitars to be sold at or above a minimum price. This kind of illegal practice, known as resale price maintenance, often leads to customers missing out on the best deals because, even when they shop around, they find all retailers tend to be selling at a similar price.

During the course of its investigation, the CMA found evidence that Fender on occasion pressurised retailers to raise their online prices, after being tipped off that they were not toeing the line.

Exploring the case further, the CMA also found that certain Fender employees deliberately tried to cover up their actions by recording as little as possible in writing. But the investigation uncovered emails and texts from Fender’s IT servers and mobile phones, which helped to prove the illegal behaviour.

Andrea Coscelli, CMA Chief Executive, said:

It is absolutely essential that companies do not prevent people from being able to shop around to buy their products at the best possible price. This is especially important for expensive and popular items like guitars, and so Fender’s actions could have had a big impact on customers.

Quite simply, this behaviour is against the law. The fact the CMA has imposed large fines on major musical instrument firms Casio and Fender in a matter of months should be a lesson to this industry and any other company considering illegal behaviour. Break competition law and you will face serious consequences.

As a result of Fender’s illegal actions, the CMA has fined it £4.5 million, which is the largest imposed in the UK for resale price maintenance. This comes just months after the CMA fined Casio £3.7 million for similar behaviour in relation to digital pianos and keyboards.

The CMA has produced guidance for businesses about RPM so they can make sure they play by the rules and avoid fines. Businesses can also watch the CMA’s short film that explains what RPM looks like in practice.

A public version of the CMA’s final infringement decision will be published in due course.

Further information can be found on the Fender investigation web page.

Source: CMA

Background

  • The Chapter I prohibition of the Competition Act 1998 covers anti-competitive agreements, concerted practices and decisions by associations of undertakings which have as their object or effect the prevention, restriction or distortion of competition within the UK or a part of it and which may affect trade within the UK or a part of it. Similarly, Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits such anti-competitive agreements, concerted practices and decisions by associations of undertakings which may affect trade between EU member states.
  • The infringement decision is addressed to Fender Musical Instruments Europe Limited (a UK company) which the CMA decided was directly involved in the infringement and to Fender Musical Instruments Corporation as its parent company (a US corporation).
  • The fine amount was discounted by 60% under the CMA’s Leniency Programme and by a further 20% to reflect settlement.
  • The estimate that an average of around 40% of musical instruments are now sold online is based on information the CMA gathered from a number of major UK retailers and published in its Digital pianos and digital keyboards sector Decision.
  • EU and UK competition authorities have been very active in investigating resale price maintenance in recent years and have together issued several infringement decisions. The European Commission fined four companies for resale price maintenance in July 2018: Philips, Pioneer, Asus, Denon.
  • The CMA has so far fined companies for online RPM in four cases: one in August 2019 in the digital pianos and digital keyboards sector, one in August 2016 in the light fittings sector and 2 in May 2016; one in the bathroom fittings sector and one in the commercial refrigeration sector.
  • In 2018 the CMA issued 4 advisory letters and 34 warning letters about resale price maintenance: alerting companies to the illegal nature of this practice and prompting action to ensure compliance.

The CMA has 3 other ongoing antitrust investigations in the musical instruments and equipment sector: cases 50565-450565-5 and 50565-6.