COMPETITION • FRENCH LAW • SCOPE OF APPLICATION
The phenomenon of buyer power does not easily fit within competition law. Buyer power is generally but not exclusively applicable to distributors and concerns mainly the upstream market, i.e. relations between distributors and suppliers, whereas price theory is mainly of interest to the suppliers of products or services and is primarily of concern to the downstream market where distributors and consumers come together. The rules of competition law were originally developed to address the market power of producers alone, even though concentration in the mass retail distribution sector and the strengthening of the economic power of buyers have, since the 1970s, become an ever more marked economic reality.
The existence of market power is, in practice, deduced principally from the market share held by the dominant undertaking. However, buyers (e.g. in the mass retail sector), generally only have a relatively low share of any product market and therefore rarely fall foul of traditional competition law offenses, unless a specific distribution service market can be characterized. In addition, purchasing concentration tends to be in line with competition policy, since it leads to lower prices to the benefit of consumers, even if it is also likely to result in negative effects for both consumers (standardization of products, disappearance of specific offerings, no product development etc.) and producers, who are the weaker contracting parties and often victims of abuse of buyer power.
The classic analysis, which perceives the producer/distributor relationship as a form of delegation whereby the distributor is a mere agent of the producer, has in fact given rise to the underestimation of the services provided by distributors and the market power they possess. However, the service that the distributor adds to the product contributes greatly to its valorisation by consumers. The control authorities tend now to regard the downstream market not as a product market but as a services market. According to the Competition Authority, the decision-making practice identifies six markets within the food-dominated trade, using several criteria, such as “size of the stores, sales techniques, accessibility, nature of the service provided and the breadth of product ranges offered” (hypermarkets / supermarkets / specialized trade / small retail trade or supermarkets / maxi-discounters / distance selling). So, just as the distributor renders services to the consumer, he renders services to the producer.
Once the existence of a supply market is acknowledged, it should be considered that the producer does not confront a homogeneous market, but a diversified one, depending on the specificity of the conditions of commercialization. The services provided by the different types of distributors, such as hypermarkets, supermarkets, specialized trade, small retail trade, and maxidiscounters, are not the same in terms of packaging, product presentation or communication. A specialist store offers a narrow but deep product assortment. The width and depth of the product range on offer is significantly greater in a hypermarket than in a supermarket, which itself has a wider and deeper assortment than a neighborhood convenience store. Likewise, a small retailer cannot use end aisle displays or organize trade events to promote products. Moreover, those types of practices are on completely different scale in hypermarkets as opposed to supermarkets. The various service offers are not therefore substitutable with each other. In order to comprehend the actual buying power of a distributor, the upstream market should be considered as a service market rather than a product market and be broken down in exactly the same way as is implemented on the downstream market in order to take account of the services rendered by distributors. Abuse of buyer power would no longer be perceived as an abuse of economic dependence but as the expression of a market power, in accordance with the classic notions of competition law. The Authority has opened the door to a sub-segmentation of the upstream market by distribution channel, at least for certain categories of products, simply noting that “the evidence gathered during the course of the investigation of this opinion suggests [that such segmentation] may be appropriate“.
