The Federal Cartel Office Fines Bicycle Wholesaler ZEG €13.4 million for Retail Price Maintenance

• United Kingdom
• Germany

• Competition, EU and Trade

01-02-2019

On 29 January 2019, the Federal Cartel Office (“FCO”), the German competition authority, fined bicycle wholesaler ZEG Zweirad-Einkaufs-Genossenschaft eG (“ZEG”) €13.4 million for engaging in resale price management (“RPM”) with 47 bicycle retailers. This followed a dawn raid on ZEG’s premises in February 2015 by the FCO after receiving a tip off from a company in the bicycle trading sector. This case highlights the FCO’s active enforcement against vertical restraints and RPM.

ZEG is a bicycle purchasing cooperative based in Cologne formed of around 960 independent bicycle retailers in Europe, around 670 of which are based in Germany. ZEG sells its own branded bicycles (e.g. Pegasus, Bulls and ZEMO) to retailers as well as certain models of other manufacturers, which ZEG sells exclusively.

The FCO found that, since 2007, ZEG directed its retailers not to undercut the minimum resale prices that it set for its own branded bikes, as well as other models that it exclusively sold. Following complaints from retailers about other retailers undercutting prices, ZEG conducted research into its retailers prices. Retailers that undercut the set price were asked to stick strictly to the recommended prices.

Andreas Mundt, President of the FCO stated that the arrangements “greatly restricted price competition between the members of the purchasing cooperation to the detriment of the consumer”. Under EU and German competition law, RPM is permitted in very limited and specific circumstances, namely, in a franchise system or similar distribution system for coordinated short-term low price campaigns. Mundt explained, however, that ZEG’s measures “far exceeded what is permissible and have created a situation similar to a sales cartel among the participating retailers”.

The FCO did not initiate proceedings against the retailers due to their secondary role in the price fixing arrangements. Furthermore, the retailers were not accused of having committed a cartel offence. In determining the level of ZEG’s fine, the FCO took account of the fact that ZEG had cooperated and had reached a settlement agreement with the FCO.

Comment

In recent years, both the European Commission and national competition authorities have increased their enforcement activity against vertical restrictions including RPM. In relation to purchasing cooperatives, the case against ZEG follows an investigation launched by the FCO in 2018 against VME Union, Germany’s largest furniture cooperation, to examine potential market power issues.