Retail listing fees in the spotlight: OFT publishes paper on 'reverse-fixed' payments

• United Kingdom

• Competition, EU and Trade
• Retail

11-07-2013

The OFT has published an externally commissioned paper examining the impact of 'reverse-fixed' payments on competition. These include shelf slotting fees, listing fees and 'pay-to-stay' fees – a range of payments commonly made by manufacturers to retailers in exchange for some commitment to display a product or range.

The aim of the paper is to identify when these payments might harm competition, when they might generate pro-competitive efficiencies, and to consider arguments for and against preventing reverse-fixed payments.

The paper identifies a number of situations in which reverse-fixed payments may be pro-competitive, for example when a manufacturer pays a retailer to list a new product and the parties thereby share some of the risks of product failure. The paper identifies further situations in which reverse-fixed payments are likely to be competitively neutral, such as payments by a manufacturer to increase its existing distribution or to induce a retailer to take the manufacturer's entire product line or to buy premium shelf space, which may come at the expense of a rival or unrelated product category.

The paper also identifies situations in which reverse-fixed payments may be used for anti-competitive purposes. For example, where a powerful manufacturer uses them to secure exclusivity, or a powerful retailer seeks to prevent products being listed in a competing retailer, or where these payments are used to facilitate collusion between retailers. However, the paper identifies various additional pre-requisites that would need to be in place in order for reverse-fixed payment to be anti-competitive.

The paper suggests ‘inferences’ that could be used as a form of initial screening to determine whether or not reverse-fixed payments are likely to restrict competition.

Overall, the paper recognises that reverse-fixed payments may in many situations be pro-competitive or at least not harmful to competition. Although the paper identifies situations in which reverse-fixed payments may be anti-competitive, helpfully the paper recognises that specific circumstances would need to exist for the competitive harm to materialise.

The paper does not point to a pressing need for the OFT to take enforcement action.

However, this is clearly an area in which the OFT is interested. Therefore, retailers and manufacturers should keep these payments under review. Powerful manufacturers should be cautious if these payments are being used – explicitly or otherwise – to buy exclusivity. Retailers should be cautious if these payments may create an artificial degree of transparency, e.g. where it can be inferred from the existence of large reverse-fixed payments that competing retailers are paying above-cost wholesale prices thereby increasing retail prices.

Manufacturers and retailers alike should be particularly careful if reverse-fixed payments are being combined with any form of ‘price relativity agreement’ such as agreements under which a manufacturer ties a retailer’s retail price to the price at which that retailer sells competing products or even commonly used ‘most favoured customer’ clauses. The OFT has already expressed concern about these kinds of agreements, following the publication of a similar externally commissioned report last year.

If you have any queries, please contact Adam Ferguson, Aysha Fernandes or your usual contact.

To see a full copy of the report, click here.