A deviation from standard prices may constitute a cartel

If the derogation mechanism provided for in the framework contracts is not illegal in principle, its implementation can concretely result in vertical pricing agreement.

The decision of 29 October 2024 to the Competition Authority concerns anti-competitive practices in the low-voltage electrical equipment sector. The companies involved, namely Schneider Electric, Legrand, Rexel and Sonepar, were sanctioned for participating in vertical cartels on resale pricing. The first agreement involves Schneider Electric and its distributors, Rexel and Sonepar. The second agreement involves Legrand and Rexel. These practices were brought to light following a judicial investigation initiated by the public prosecutor of Paris, after a report by the Authority’s general rapporteur. Searches were carried out on 6 September 2018 at the premises of several companies and at the homes of some executives, allowing substantial evidence to be gathered.

The “derogations” mechanism, provided for in the annual framework agreements concluded for the distribution of Schneider Electric and Legrand products, is central in this case. These are discounts on the purchase price standard granted by manufacturers to distributors, allowing them to offer competitive prices to their customers. To do this, the distributor communicates to the manufacturer information on the market for which it wishes to obtain a derogation, which may include the resale price of the products to the end customer and the margin they wish to obtain on the resale of these products. The manufacturer may contact the end customer, in order to verify the information provided by the distributor and decide whether or not to grant a derogation, or even, if it considers that the resale price are too low, resume live relations with the distributor’s customer. In this case, theCompetition Authority found that the derogation mechanism was not unlawful in principle as there was no contractual provision prohibiting Rexel and Sonepar from charging prices below the derogated rates. On the other hand, the instruction made it possible to establish that the implementation of the derogations could concretely result in a Vertical cartel on retail prices. Indeed, through the waived prices the supplier imposed the level of discount and therefore the distributor’s margin and selling price.

The Competition Authority has therefore found that the system of derogations has been used to set fixed prices, which constitutes a restriction of competition by object. In the case of Schneider Electric, minutes of internal meetings showed a willingness to fix prices, with the membership of Rexel and Sonepar. For Legrand, direct evidence and corroborating evidence established an agreement with Rexel, but not with Sonepar.

Regarding the qualification of practices, the Competition Authority noted, with regard to each of these agreements, that the fixing of sales prices by the supplier granted by the distributor to the end customer has consistently been referred to as restriction of competition by object.

The sanctions imposed by the Authority amount to a total of €470 million. Schneider Electric was ordered to pay 207 million euros, Legrand 43 million euros, Rexel 124 million euros (89 million for the first grievance and 35 million for the second), and Sonepar 96 million euros. These amounts reflect the severity vertical pricing cartel practices, considered one of the most serious breaches of competition.

In conclusion, this decision illustrates the vigilance of the Competition Authority in the face of restrictive competition practices. The severe penalties are intended to deter such practices and protect the market and consumers from the adverse effects of price-fixing. This case also highlights the importance of monitoring and reporting mechanisms to detect and sanction behaviour pricing. It also demonstrates the need for strict regulation to ensure fair competition, which is essential for the proper functioning of the market and the protection of consumers’ interests.

Decision 24-D-09 of 29 October 2024 on practices implemented in the low-voltage electrical equipment sector