The Competition Commission of Pakistan (CCP) has imposed a penalty of Rs1 billion on Haier and Rs100 million on DEL/Dawlance for anti-competitive conduct in the form of resale price maintenance (RPM) practices.
The CCP passed an order against Haier and DEL/Dawlance for violation of section 4 of the Competition Act, 2010 for entering into RPM arrangements with its dealers, which is a form of price-fixing under Section 4(2)(a) of the Act and by object an anti-competitive practice.
The bench consisted of CCP Chairperson Rahat Kaunain Hassan and Member Mujtaba Ahmad Lodhi. The Commission imposed the penalties for DEL/Dawlance, considering its change in management, which discontinued the RPM agreement and practice, the fact that it voluntarily committed to refund the penalties to its dealers and had a cooperative and compliance-oriented approach throughout the proceedings, CCP restricted the penalty amount to Rs100 million, not exceeding 1 percent of its annual turnover in FY 2020-21.
The CCP, therefore, held that the conduct, circumstances, approach, and duration of the contravention did not justify the same treatment for both parties. Whereas, Haier was ‘blowing hot and cold’ throughout the proceedings.
Nevertheless, although its conduct called for a much higher and stricter penalty, considering the violation is a case of the first instance for Haier and in order to promote a compliance-oriented approach, with good faith, CCP restricted the penalty amount to Rs1 billion, not exceeding 3 percent of its annual turnover in FY 2020-21.
The Commission had initiated an inquiry under Section 37(1) of the Act into the alleged contravention of Section 4 of the Act by “electronic appliance manufacturers, distributors and dealers, and their respective trade associations”. To gather evidence, search and inspections were also carried out at both Haier’s and DEL/Dawlance’s premises under Section 34 of the Act.
The CCP found evidence of price circulars sanctioning dealers and price control policies in place through which both Haier and DEL/Dawlance had restricted its dealers from selling below a certain price, provided any discounts or package deals, and imposed penalties and sanctions on their dealers to monitor and implement their respective pricing policies.
The parties had also not obtained an exemption from the CCP for its RPM agreements under Section 5 of the Act on account of any efficiency grounds specified under Section 9 of the Act, i.e., that the agreements substantially contribute to improving production or distribution, promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, or the benefits of the agreements clearly outweigh the adverse effects of absence or lessening of competition.
The CCP observed that RPM agreements in any form including restricting discounts and imposing minimum and maximum pricing levels are by object anti-competitive and void under Section 4 of the Act.
In this connection, it was observed that the choice to offer forms of discount or package deals is an important part of the negotiating process. Restricting the same along with fixing prices lessens consumer bargaining power.
RPM may also lead to price hikes for consumers. Also, the argued pro-competitive effects could by no means be upheld and justified where the parties imposed penalties and sanctions on its dealers.
Alarmed by the potential likelihood of RPM agreements being rampant in any market in Pakistan as well as the possibility of dealers requesting to implement the same, CCP has cautioned all retailers, suppliers, manufacturers, dealers, and any other party in all sectors that RPM Agreements are ‘by object’ anti-competitive in nature and a violation of Section 4(2)(a) of the Act.
Dawlance is a Pakistani home appliances brand which is a subsidiary of Turkish company Arçelik. Haier Group Corporation is a Chinese multinational home appliances and consumer electronics company headquartered in Qingdao, Shandong.