EC to Take a Hard Look at E-Commerce Practices

The European Commission on Thursday announced three separate investigations into online pricing and other sales practices that may have breached EU antitrust rules. The EC investigations will assess whether consumers were able to enjoy cross-border choice when it came to buying video games and consumer electronics, and making hotel accommodations online.

The newly opened investigations will focus on specific issues, including retail price restrictions, discrimination on the basis of location, and geo-blocking.

Preliminary results of the EC’s competition sector inquiry on e-commerce indicate that these restrictions are applied throughout the EU, and that they could make cross-border shopping — and even online shopping in general — more difficult.

These practices ultimately could harm e-commerce customers, as they reduce choice, which typically results in higher prices.

“E-commerce should give consumers a wider choice of goods and services, as well as the opportunity to make purchases across borders,” said Commissioner Margrethe Vestager.

“The three investigations we have opened today focus on practices where we suspect companies are trying to deny these benefits for consumers,” she added. “More specifically, we are looking into whether these companies are breaking EU competition rules by unfairly restricting retail prices or by excluding customers from certain offers because of their nationality or location.”

Price-Fixing Suspicions

The EC will investigate whether Valve Corporation, which is the owner of online game distribution platform Steam, entered bilateral agreements with PC video game publishers Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax.

The commission is responding to concerns raised over geo-blocking — that is, restricting an individual from purchasing digital content based on that person’s location or country of residence. That would be a breach of EU competition rules prohibiting practices that block consumers from buying games for less in other member states.

The EC also will probe the activities of consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer to determine whether they breached EU competition rules. The regulators are concerned that the firms may have restricted how online retailers set prices for various merchandise, including laptop computers, home entertainment products and even household appliances.

The EC also will investigate complaints from hotel customers that European tour operators Kuoni, REWE, Thomas Cook and TUI as well as the hotel chain Meli Hotels, may have altered prices and accommodations based on the consumer’s nationality or place of residence.

All of these suspected activities would be in violation of Article 101 TFEU, which prohibits agreements that prevent, restrict or distort competition within the EU’s Single Market.

“The European Commission wants to ensure that all EU citizens get the same price in the Common Market,” said Roger Entner, principal analyst at Recon Analytics.

“Charging people in one EU country one price and in another EU country another is not allowed,” he told the E-Commerce Times. “It’s the equivalent of charging people in Alabama a different price than that charged to someone in Washington.”

Pricing for Access

There may be a positive argument for price manipulation, suggested Derek E. Bambauer, associate professor of law at the University of Arizona’s James E. Rogers College of Law.

“Price discrimination generally gets a bad rap, but it isn’t always bad,” he told the E-Commerce Times.

“We might want, for example, people in wealthier countries to pay more for drugs or games if that lets people in poorer countries have access to them at lower cost,” Bambauer observed.

“In a world without price discrimination, vendors might just set an average price across, say, EU/EC countries” he said, “and that has the potential for undesirable distributional consequences. Some wealthy consumers get to buy at a lower price, and some poorer ones now can’t afford access.”

Foul Play

In the case of the investigation into Valve, the EC wants to find out if consumers using the Steam service were blocked from purchasing games.

Video game titles purchased on Steam require a user to confirm that the copy is not pirated via an “activation key,” and the EC is investigating where these keys are being tied to a specific EU member state.

“The investigation into Valve and several major game publishers is part of the larger initiative to enforce a single digital market,” said Joost van Dreunen, principal analyst at SuperData Research.

The practice of geo-blocking goes against that policy, but the EC also could be going after Valve because it is the most popular digital PC game distributor, earning around US$1.2 billion annually across Europe, he told the E-Commerce Times.

“Compared to other entertainment segments, gaming represents a substantial market, and Valve is a leading platform,” van Dreunen added. “Digital entertainment is by default global, and while firms may seek to optimize their earnings in certain territories, that is not always within the boundaries of the law.”

Location Location Location

The issue of geo-blocking may be more complex, especially as the video game industry has had to deal with piracy for decades, and it could argue it simply is protecting its intellectual property by restricting access in countries where piracy is a problem.

“Often geo-blocking is to ensure content is appropriate for the countries where it is offered, or to ensure that licenses, which often are geographically granted, are in place for the content being provided,” explained Rob Enderle, principal analyst at the Enderle Group.

“The EU is arguing this is some kind of price-fixing, but I’m having a hard time getting there since they aren’t complaining about higher prices but the lack of availability,” he told the E-Commerce Times.

“You can’t fix prices, but you sure can decide not to provide any product to any country if you want — particularly if doing so results in extra costs, or if there isn’t enough of a market in that geography to justify the effort,” Enderle added.

On a number of these issues, the EC is juggling conflicting responsibilities.

“On the one hand, it is interested in protecting protect consumer privacy by requiring specific data management practices,” said Josh Crandall, principal analyst at Netpop Research.

“On the other, it is responsible for encouraging economic competition and development,” Crandall told the E-Commerce Times. “Many European countries add specific requirements within their own borders. These practices create a complicated legal mesh that companies [must navigate].

Crime and Punishment

It isn’t yet clear whether Valve and the other named parties are in violation of any EU regulations. It’s also possible that they broke the letter of the law without actually violating its spirit.

“It’s not clear whether the geo-blocking activities the EC is accusing Valve and other game companies of are intentional are or simply oversights due to a complicated legislative environment,” Netpop’s Crandall said.

“They may simply not have the systems in place to manage personally identifiable information required for game play across the EU, and are geo-blocking so they don’t run afoul of EU privacy regulations,” he explained.

“One outcome that we anticipate is the adjustment of Valve’s policies and ceasing to block purchases and pricing based on location,” noted SuperData’s van Dreunen. “But that is only after the EC successfully establishes that these companies are in violation of unfairly restricting prices or excluding customers.”