The French Competition Authority examines the competition effects of category management

The French Competition Authority -Autoritè de la Concurrence- or FCA has recently published its opinion on competition effects that category management arrangements are expected to have (Avis n. 10-A-25 of 7 December 2010) . Apart from the recent European Commission’s Guidelines on Vertical Restraints, which contains a brief section on competition impact of category management, this is the first time that a European competition regulator deals at length with the issue of the implications that reliance on this marketing tool may have on competition in retail markets. The opinion of the FCA, however, must be read with the caveat that its assessment was focused, logically, on the likely effects of category management in the French retail markets. In this regard, it notes that within the category management arrangement used in the French market retailers keep the last word on their marketing policies, while the captain only gives non-binding recommendations to them. Importantly, this typical pattern of French category management is likely to lower the risk that such arrangements may result in negative effects for competition.
That said, the FCA identifies a number of potential competition concerns arising out of category management, whether foreclosing or collusive practices. First, the FCA fears that the captain may impede or frustrate access of competing products to shelf space. This may occur either by influencing the retailer’s decisions on how to place goods on shelves or by denigrating its rivals’ products. Interestingly, the Guidelines of the Commission make no reference to captain’s denigrating conducts. Second, category management can be regarded as a factor facilitating collusion between retailers and suppliers. This may be the case, in particular when a given manufacture enters into category management arrangement with a number of retailers, thereby communicating sensitive commercial data supplied by one partner to the other retailer partners. This may result in a so-called hub and spoke cartel. By the same token, the information exchanged through category management arrangement may facilitate collusion between suppliers, since the captain may have access to sensitive data regarding commercial policies of competing manufacturers.
Finally, the FCA tables a number of recommendations that the partners of category management arrangements should comply with in order to prevent the above competition problems from occurring. In particular, the FCA believes that more transparency in the process of the selection of the captain should alleviate the risk of anticompetitive behaviour. To this end, a retailers should make public its intention to appoint a captain by way, for example, of advertising a public call for application from any interested operator. Equally, clearly setting out the obligations undertaken by retailer and captain in a formal arrangement or contract should be of help in preventing collusive or foreclosing conducts. Finally, the parties should refrain from exchanging sensitive commercial data. In that regard, EU competition rules on exchange of information are of relevance.