Irish Competition Authority Decisions

1. Arrangements involving a currency conversion chart for calculating the price of UK published books were notified to the Authority by the Irish Branch of the Booksellers Association on 30 September 1992. The notification requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence. The Authority issued a Statement of Objections to the Association on 22 June 1994. On 6 July 1994 the Association replied indicating that they did not wish to have an Oral Hearing and stating that the Authority's decision on the Net Book Agreement nullified any currency conversion mechanism.

2. The notification concerns an arrangement between members of the Booksellers Association of Great Britain and Ireland - Irish Branch, (the Association), for determining the exchange rate to be applied to the cover price of books imported from the UK into Irish pounds for sale to consumers. These arrangements involve the preparation of a currency conversion chart by the association which is circulated to members. The Association stated that there was no written agreement.

3. The Booksellers Association of Great Britain and Ireland is an association of booksellers with members in Ireland and the UK. The parties to the notified arrangements are individual booksellers in Ireland. The notification stated that it related ´to the practice of members of the Association, comprising booksellers in Ireland, in relation to determining the exchange rate to be applied to the cover price of books imported from the United Kingdom for conversion into Irish pounds for sale to

consumers.'

4. The product concerned in the notification is books encompassing the retail sale of books to the general public through retail outlets located throughout the State. To some degree each individual book title may be considered an individual product. Some consumers are interested in particular types of books, e.g. thrillers, while others may have a preference for a particular author. A DIY title is not a close substitute for a romantic novel. Nevertheless there is scope for a considerable degree of substitutability between book titles. It is possible, however, to distinguish between schoolbooks and other types of books as these categories cannot be considered to be close substitutes for one another. The arrangements concern books imported from the UK. As most schoolbooks are not imported, the principal market involved is that for the sale of books other than schoolbooks in the State. The agreement also affects the schoolbook market within the State to the extent that some schoolbooks are imported from the UK.

5. Book imports in 1991 amounted to £59.8m (Table 1). Imports of books from Great Britain and Northern Ireland accounted for 79% of book imports in 1991. Imports of books from Great Britain and Northern Ireland accounted for almost 1% of total imports from these countries. Imports account for a large proportion of the Irish book market. For example in its decision on the Net Book Agreement, the EC Commission stated that books imported from the UK accounted for slightly more than 50% of total book sales in Ireland. A significant proportion of the books sold within the State are schoolbooks and the majority of these are published by Irish publishers. Thus imports from the UK account for well in excess of 50% of the relevant market, i.e. books other than schoolbooks.

1991 1990

Country (£000) (%) (£000) (%)

Great Britain 45,047 (75.3) 41,271 (75.9)

Northern Ireland 2,121 ( 3.5) 1,980 ( 3.6)

U.S.A. 7,493 (12.5) 4,268 ( 7.8)

Other Cos. 5,138 ( 8.6) 6,892 (12.7)

Total 59,799 (100) 54,411 (100)

Source: CSO; Trade Statistics.

6. According to the 1988 Census of Services, there were 370 retail outlets involved in the sale of books and stationery with 1659 persons engaged. Total turnover of bookshops in 1988 was £79m according to the Census, of which Dublin outlets accounted for £35.7m (45.4%). The number of bookshops had increased by 130 since the 1977 census. Of the 370 outlets, 111 are located in Dublin with the rest of Leinster accounting for an additional 102. This compares with the 1977 figure of 72 and 41 respectively. The province of Munster had 115 outlets in 1988 compared with 84 in 1977. Of the 1988 total 37 were located in Cork, 17 in Limerick and 8 in Waterford. Connacht had 31 bookshops, of which 10 were located in Galway, compared to 25 in 1977. The Ulster counties of Donegal, Monaghan and Cavan had a combined total of 11 outlets which represented a decrease on the 1977 figure of 18.

No.of Outlets Gross Turnover (£m)

1988 1977 1988 1977

% % % %

Leinster 213 (57.6) 113 (47.1) 52.3 (66.5) 12.1 (66.5)

Munster 115 (31.1) 84 (35.0) 22.2 (28.2) 2.2 (28.9)

Connacht 31 ( 8.4) 25 (10.4) 3.0 ( 3.7) 0.5 ( 2.6)

Ulster 11 ( 3.0) 18 ( 7.5) 1.2 ( 1.5) 0.3 ( 2.0)

State 370 (100) 240 (100) 78.6 (100) 18.1 (100)

Dublin 111 (30.0) 72 (30.0) 35.7 (45.4) 10.8 (59.6)

Cork 37 (10.0) 24 (10.0) 10.5 (13.4) 2.4 (13.4)

Limerick 17 ( 4.6) 9 ( 3.8) 4.1 ( 5.2) 1.0 ( 5.3)

Waterford 8 ( 2.2) 7 ( 2.9) 2.2 ( 1.7) 0.4 ( 2.3)

Galway 10 ( 2.7) * 1.3 ( 2.8) *

Total 183 (49.5) 112 (46.7) 51.6 (65.6) 14.6 (80.6)

* Figures not available

Source: Census of Services (CSO) 1988 and 1977

7. Table 3 shows that the average size of retail bookshops in 1988 was almost 900 square feet. Overall average size in 1988 was 8% higher than in 1977. There were considerable regional variations. The average size of bookshops in Dublin was 1300 square feet compared with 700 square feet outside of Dublin. The average bookshop in Connacht and Ulster was less than half the size of the average Dublin shop, while the average Munster bookshop was only 60% as large. It is clear, however, that the average size of bookshops outside of Dublin increased over the 1977-88 period.

1988 1977

(Sq-Ft)

Leinster 1013 1048

Munster 788 776

Connacht 539 360

Ulster 645 300

Dublin 1304 1369

Rest of Ireland 716 592

State 892 825

Source: Census of Services (CSO) 1988 and 1977.

8. The arrangements relate to the practice of members of the Association comprising booksellers in Ireland, in relation to converting the cover price of books imported from the UK into Irish Pounds for sale to consumers. They are described in the notification form as an ´agreement/decision/concerted practice in relation to conversation [sic] rates applicable to sales of books in Ireland originating from England.' The notification included what was described as a typical conversion chart and stated that there was no written agreement as such to be notified. The notification stated that it was being submitted ´without the further information requested by the Authority in order to ensure that the Association complies with the deadline of 30 September 1992 laid down by section 7(2) of the Competition Act, 1991. The further information will be supplied in due course.'

9. The conversion chart enclosed was dated May 1982. It included a column headed UK price with a series of prices from 25p to £3 and a series of columns showing the appropriate Irish pound price for various exchange rates ranging from IR£1 = stg£0.69 to IR£1 = stg£0.8399. The chart described the prices as ´Selling Prices at the Following Exchange Rates'. The chart also stated that to calculate selling prices for prices not shown various percentage add-ons should be added to the UK price, ranging from 23.5% to 48%. (The Association subsequently pointed out that these conversion rates included an add-on of 15% due to VAT). A letter dated 6 July 1990 with a revised conversion chart was also submitted. The letter states as follows.

´Dear Member,

´Following the issuing of the revised Ready - Reckoner there have been a great number of complaints from booksellers on the decision to drop scales C (11%) and E (19%).

I have discussed the matter with some members of the Executive and in the circumstances, it has been decided to restore Scales C and E with immediate effect. The revised Scales are attached for your information.'

The letter is signed by the Chairman of the Association. The attached chart is similar to the 1982 version except that it now provides conversion rates for exchanges rates varying from IR£1 = stg£0.75 to IR£1 = stg£0.9899.

10. The exchange rates in the 1990 chart are broken down into intervals of stg£2.99p in all cases bar one, i.e. the same conversion rate applies, for example, for an exchange rate of IR£1 = stg£0.87-0.8999. In one case the same conversion rate applies for a range of stg5.99p, so that the same conversion rate is applied in the event of the Irish pound being worth 98.99p sterling as when it is worth 93p sterling. The chart also includes a note that for an exchange rate in the range IR£ = stg0.99-1.04, the UK price column should be used for pricing. The chart then states that to calculate selling prices not shown above the following percentages should be added to the UK price. The Association stated that, in its view the bands were relatively narrow and were adjusted quite regularly and this ensured that the trade was seen to act responsibly in the light of exchange rates. They also stated that the 1990 chart was misleading since it was superseded as soon as it was issued.

75 - 77.99 Add 33%

78 - 80.99 Add 28%

81 - 83.99 Add 23.5%

84 - 86.99 Add 19%

87 - 89.99 Add 15%

90 - 92.99 Add 11%

93 - 98.99 Add 7.5%

Table 4 gives an example of the Irish pound price given by the chart for a book priced at stg£20 for various exchange rates and compares it with the price calculated on the basis of the actual exchange rate. The add-ons listed in the conversion chart for each exchange rate band are those which would be necessary to convert the sterling price into Irish pounds for the bottom rate of the band, i.e. for any exchange rate between IR£1 = stg93p and stg98.99p the conversion gives the Irish pound price which would apply for a rate of 93p sterling. Thus at the extreme, at an exchange rate of Ir£1 = stg98.99p, the chart gives an Irish pound price of £21.50 when the correct price would be £20.30.

IR£/stg£ Price in IR £ Price in IR £

exchange per chart per actual

rate exchange rate

IR£1 = stg90p 22.22 22.20

IR£1 = stg92.5p 21.62 21.20

IR£1 = stg93p 21.50 21.51

IR£1 = stg98.99p 21.50 20.30

11. It is relevant to the present notification that many UK publishers are party to an agreement, known as the Net Book Agreement (NBA). This agreement has also been notified to the Authority and is the subject of a separate decision. The NBA is a voluntary agreement administered by the Publishers Association (PA) whereby UK book publishers impose a minimum net price on the sale of most of their publications in the U.K. and Republic of Ireland. It includes a number of ancillary agreements providing for limited exemptions from the provisions of the NBA for specified groups of book purchasers.

12. The NBA was also notified to the EC Commission. The Commission refused an exemption to the NBA under Article 85(3) of the Treaty of Rome. The decision was upheld by the Court of First Instance on appeal and the PA subsequently appealed to the European Court of Justice. The Commission, in its decision on the NBA, stated that:

´A special situation prevails in Ireland, where the ending of parity between the Irish punt and the British pound following Ireland's joining the European Monetary System, had made the pricing of books and the enforcement of the standard conditions of sale more difficult, as was reported by the Association. These problems were discussed by the Association and the Irish book trade at meetings in Dublin in 1981, as a result of which various measures were recommended to members. In particular, the Irish branch of the Booksellers Association of Great Britain and Ireland introduced a currency conversion schedule, which enables Irish booksellers to convert book prices expressed in British pounds easily into Irish punts.'

13. The Association stated that it did not believe that the arrangements were anti-competitive. They had decided to notify them merely as a precautionary measure.

14. The Authority wrote to the Association's solicitors on 11 May 1993 requesting a copy of the annex to the notification. No reply was received. On 23 June 1993 the Authority wrote to the Association's solicitors drawing their attention to the reference in the EC Commission decision in respect of the NET Book Agreement (see above) to the introduction of the currency conversion chart by the Association following discussions with the UK Publishers Association regarding problems with the enforcement of the NBA in Ireland. They were specifically asked if the notified arrangements related to the currency conversion chart specified in the Commission decision. No response was received. The solicitors concerned informed the Authority that they have no record of such letters. The parties were subsequently asked for specific information relating to the operation of the arrangements. On 10 March 1994 the Authority informed the Association that, if certain documentation relevant to its examination of the notified arrangements was not furnished within 7 days, it would summon a representative of the Association to appear before it and produce said documents. The Association responded objecting to the limited time given to it to compile the information requested. It indicated that in the time available it had been possible to locate one letter from the Association to its members on the subject of the arrangements. It indicated that it would do its best to locate the remainder of the information sought by the Authority. On 24 March 1994 the Authority issued a summons to the Chairman of the Association requiring him to appear before it on April 18 1994 and to produce any of the following documents:

(i) All records of discussions between the Booksellers Association and UK Publishers' Association, and all correspondence between the two bodies in connection with the notified conversion chart;

(ii) All correspondence and records of discussions between the Irish and UK branches of the Booksellers Association in connection with the chart;

(iii) All correspondence and records of all discussions between the Booksellers Association, Irish branch, in connection with the chart;

(iv) All records of the work of the working group set up in January 1993 and referred to in the Associations' letter to its members of 30 November 1992.

At the request of the Association, the Authority agreed to defer the date for the appearance of Mr. O'Mahony to 20 April 1994. At that time Mr. O'Mahony produced a number of the requested documents, indicating that these were all the relevant documents which he had managed to find. While the documents produced by Mr. O'Mahony did not constitute a complete record they nevertheless provide considerable information regarding the nature of the arrangements.

15. On 22 June 1994 the Authority issued a Statement of Objections to the Association indicating its intention to refuse its request for a certificate or licence in respect of the notified arrangements. The Association was given 28 days to respond in writing and were offered the option of an Oral Hearing. On 6 July 1994 the Association replied indicating that it did not wish to have an Oral Hearing and stating that the Authority's decision to refuse a certificate or licence to the Net Book Agreement nullified any currency conversion mechanism.

16. As stated in para 14, the Authority issued a summons to Mr. O'Mahony, the Chairman of the Association, requiring him to produce specific documents which the Authority considered necessary for it to come to a decision in respect of the notified arrangements. The material provided includes records of meetings and correspondence concerning the arrangements. These provide a more detailed picture of the notified arrangements. It was unclear when exactly the currency conversion arrangements were first established. The documents submitted by Mr. O'Mahony included a report of a meeting between the Executive Committee of the Booksellers Association and a number of UK paperback publishers, including the Chairman of the Publishers Association Home Sales Committee (PAHSC) on 14 October 1980. It was noted that a Mr. Williams of Pan (a UK publisher) had visited Ireland in July and had submitted a note which was discussed by the PAHSC at a meeting on 15 September. The report went on to refer to an initial report prepared by a Mr. Harold Clarke in July 1980, and the banding tables by which a bookseller was able to price up his books based on the prevailing value of the Irish pound. It was also noted that a Mr. Davies, described as a Director of the Booksellers Association, had visited Ireland in July and that it was envisaged that, as a result of this, a report would be sent to the Publishers Association after which a meeting would be arranged. The meeting of 14 October arose as the proposed report had not been prepared and the paperback publishers felt that they as a group should investigate what could be done in the future. Among the main topics discussed at the meeting were the fact:

´That, due to the currency differentials, the Irish Trade is now suffering a drop in gross profit.'

It was suggested at the meeting that ´it would be a good idea that an official Booksellers Association sticker be used which would be virtually "unpeelable" so that the public would know that this was an official price.' The report also notes the suggestion that, ´in common with other export markets, the Irish Trade should set their own price, was received with less than enthusiasm.' The publishers agreed to explore the matter further and possibly to have a further meeting with the Irish Trade in London.

17. A report of a meeting held in 31 South Anne Street, Dublin on Thursday 19 March 1981 at 4.00 pm notes that, at the AGM of the Irish Branch of the Booksellers Association in Kilkenny in March, the problem of pricing UK published books was seen to be causing great difficulty. It went on to state that:

´The Executive Committee was instructed to approach British publishers as soon as possible to endeavour to work out a pricing formula which would be acceptable to the public, the trade and the Prices Commission.'

As a result the new executive appointed a sub-committee to investigate the situation with a view to meeting a delegation from the Publishers Association at the earliest opportunity. This note is a record of a meeting of the sub-committee.

18. In a letter to members dated 15 April 1981, Mr. Frank O'Mahony, then Chairman of the Booksellers Association Irish Branch, proposed that a small group of people would meet the UK publishers having agreed with the executive committee in advance the points to be discussed with them. It was suggested that the following points should be discussed with the Publishers Association.

´1. Books should come unpriced if possible but with an agreed code - UK price visible is a great disincentive.

4. Books sent for review should be unpriced with approximate Irish Price given perhaps let P.A. distribute our chart to their members.'

Apart from discussions on rounding up of conversion rates, the Association provided no further records up to 1990. Mr. David O'Mahony informed the Authority that he was not aware of any meeting between the Booksellers Association and the UK Publishers Association to discuss the currency conversion chart. He indicated that he had not been heavily involved in the Booksellers Association at that time. He subsequently informed the Authority that he raised the matter of whether such a meeting occurred with the Chief Executive of the Publishers Association and had been informed that no formal meeting took place between the two associations but that there had been a meeting between the Booksellers Association and a number of paperback publishers purely to discuss pricing in Ireland. Mr. O'Mahony stated that the currency conversion chart had to take

cognisance of the relationship with the NBA.

19. A revised ready reckoner for converting sterling into Irish pounds when pricing books was issued on 29 June 1990. It stated that:

´The broadening of some of the bands will allow for greater stability of pricing and avoid the need to change bands frequently.'

It also stated that:

´The Executive Committee of the Booksellers Association have agreed to introduce this Reckoner from Wednesday 27th June 1990.'

20. The minutes of a meeting of the Booksellers Association on 28 August 1990 record that:

´The Bands agreed for the sterling charts at the meeting of 20th June had been changed. The agreed bands had been sent out on 29th June. The reaction of booksellers had been monitored between 29 June and 6 July. As a result of strong representations from booksellers (who felt they could not stand over some of the bands), the Chairman had consulted with several committee members and had drawn up another pricing chart in line with the views expressed to him. This had been circulated on 9th July. Some committee members expressed their concern at the arbitrary way in which the revised scale was drawn up. An E.G.M. should possibly have been called to discuss the changes.

It was proposed and agreed that a sub-committee on prices would be set up......It was suggested that a representative from another trade together with a financial person would also serve on such a pricing sub-committee. It was agreed that any future changes would be circulated and discussed at the next A.G.M.'

These appear to be references to the chart referred to in para 10 above which had been submitted with the original notification.

21. Draft minutes of the March 1991 AGM of the Booksellers Association record discussions of a proposal for a draft agreement between booksellers and publishers for a system of resale price maintenance (RPM). It noted that a discussion document had been circulated to all Irish Branch members in advance of this meeting proposing a draft RPM agreement. According to the minutes the proposal was discussed and a number of modifications were agreed by consensus.

22. At a meeting of the Booksellers Association Committee held on 18 June 1991 a Mr. John Davey proposed that the sterling pricing chart should be changed to reflect the changes brought on by the EMS. After a full discussion it was agreed that a letter would be sent to members outlining the following proposal:

88p - 89.99p - 15%

90P - 91.99P - 12%

92P - 93.99P - 10%.

A letter to this effect was sent by Mr. Davey to the members of the Association on 21 June 1991. It stated inter alia that the ´11% we are currently adding is not enough to cover our costs, particularly when bank charges are taken into account.' It goes on to state that before the committee would recommend the implementation of these proposals it would welcome comments before 5 July. At a meeting of the Committee on 28 August 1991 Mr. Davey recommended as a result of consensus among members that the sterling chart should be changed as per the June letter. Following discussions it was agreed that Mr. Davey would draft the chart. The minutes of the following meeting held on 25 September 1991 record that Eason & Son along with some other members had objected against the circulation of the new chart but it had been adopted by a majority of those at the meeting.

23. The minutes of the 1992 AGM of the Booksellers Association held on 13 March 1992 records that the Association had until 30 September to notify the NBA (Net Book Agreement) to the Authority for the purpose of obtaining a licence. It was stated that in the meantime a draft of a system of RPM for Ireland was being prepared in case the European Court decided against the NBA.

24. In a letter dated 16 November 1992, Ms. Gemma Barry of the Bray Bookshop (then Chairwoman of the Booksellers Association Irish Branch) wrote to Mr. David O'Mahony. The letter stated inter alia that Ms. Barry was waiting on Eason's come back to her on the currency situation. She expressed the view that if they had not done so by the end of the week the current conversion chart should be withdrawn immediately. It went on to state that:

´The situation is getting quite tricky in Dublin. Hodges are at -3% and say they will go to -5%. Eason's are "officially" at -3%.'

At this time the Irish Pound was above parity with sterling.

25. On 30 November 1992 Ms. Barry, as Chairwoman of the Association, wrote to the members. The letter indicated that the Committee had been reviewing the question of ´how members might wish to price in Irish pounds books which members have purchased from UK publishers.' It argued that if members simply translated the sterling retail price directly into Irish pounds at the current exchange rate, they were likely to suffer a substantial reduction in profitability compared with the situation before sterling weakened and devalued. It stated that the Committee had decided to set up a working party as of January 1993 to review the whole question. It pointed out that the Committee's preliminary analysis suggested that pricing guidelines along the basis outlined in the attached discussion note would maintain the profitability of booksellers. The note in question argues that profitability had been reduced following the weakening of sterling. In particular it stated that previous practice which involved adding 12% to the retail price when sterling was at 91p when compared with the then current practice of subtracting 3% from the retail price of a book when sterling was at £1.08p resulted in lower margins. It went on to state that ´It is also possible to determine what rate should be applied to the sterling price to maintain previous levels of profitability.' It then stated that this procedure would give the following translation rates:

98 - 101.99 +6%

102 - 105.99 +4%

106 - 109.99 +2%

110 - 113.99 0%

114 - 117.99 -2%.

The summons issued to Mr. O'Mahony requested that he produce the records of the working party referred to in this letter. He stated that it had not been set up and that therefore there were no such records.

26. The Booksellers Association Irish Branch Newsletter for February 1993 stated that the Competition Act had come into effect on 30 September 1992 and that anyone ´operating a price controlled system and who wished to continue to do so was required to submit details of their pricing system and to make an application for a licence which would exempt them from the requirements of the Competition Act.' It stated that the association had fulfilled those requirements on behalf of booksellers. The present notification is the only one made to the Authority by the Association. The newsletter reported that a sub-committee had been set up ´to examine possible pricing structures which would allow us to maintain our existing margins and at the same time address the serious marketing problems that the present pricing structure is causing.'

27. In April 1993 the newsletter stated that the currency situation had changed dramatically since the Association had last written to people. It stated that:

´We advise our members to use the last conversion chart as a guideline only. It is basically up to each bookseller to convert at whatever rate they see fit. The most important consideration is maintaining profitability and reducing customer queries.'

In June the newsletter stated that:

´It is very important that the trade act fully together and not be ´´wholesale' led They have slightly different operations criteria than the retail trade so remember stick to maintaining margin.'

The September issue observed that most people were still operating on a 10% price differential to take account of the exchange rate. It went on:

´It may be wise to continue the 10% for another two weeks but if the exchange rate rests at around 0.94/0.95 you would need to be putting on a minimum of 7.5% to maintain margin.'

It also referred to some UK publishers now putting Irish pound prices on their Irish editions and observed that:

´It is great to see a number of English publishers finally meeting our request going back many years but it is important to ensure that this pricing arrangement has no effect on your margin.'

28. The minutes of the Association committee meeting on 15 June 1993 refers to a member stating that he ´would like to see consistent pricing in bookshops as there was emerging a ´wholesale' type situation......' The Chairman emphasised the importance of acting together as one retail body.

29. In addition the Authority was also provided with a wholesale sterling ready reckoner. Another undated copy of the currency conversion chart stated that:

´To calculate prices not shown above add appropriate percentages and round to nearest 5p.

The basis for the sterling rate is the 60 day forward retail bank rate.

Rates are set on the 1st Wednesday of the month and are held for the month.'

30. In his letter of 6 July 1994 the Chairman of the Association stated that the references made in the various documents indicated the difficulty in pricing and maintaining the principles of the NBA at the same time. He stated that the pricing chart was only meant to act in the public interest and showed the tremendous concern of the Association with pricing consistencies. He argued that if anything the book trade was too responsive to currency matters as most other trades set their prices at the beginning of the year with an inbuilt cushion to account for estimated exchange fluctuations. He also stated that the chart was introduced so as to insure minimum disparities in the retail price of books in Ireland and so would be consistent with the principles of the NBA. He stated that it was only introduced as a guideline and was always perceived as such.

31. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

32. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the arrangements are booksellers located throughout the State and include sole traders and corporate bodies. Booksellers are engaged for gain in the resale of books and are therefore undertakings within the meaning of the Act. The notified arrangements involve an arrangement between booksellers who are members of the Association to employ a common mechanism for converting sterling prices into Irish pounds. It appears from the documents obtained from Association that the proposed conversion charts were circulated to members for discussion before being formally adopted. While there is no formal agreement between the members it appears to the Authority that there is at least a concerted practice whereby the members approve the chart and use it to price books imported from the UK. It is relevant in this context that the notification specifically describes the notified arrangements as an ´agreement/decision/concerted practice in relation to conversation rates applicable to sales of books in Ireland originating from England.'

33. The conversion rates are determined by the Association which is an association of undertakings as its members are undertakings. The arrangements also therefore constitute a decision by an association of undertakings. The Authority noted in its decision on the Association of Optometrists that according to EC precedents:

´The concept of ´decision' includes the rules of the association in question, decisions binding upon the members and recommendations. Agreements implemented within the framework of the association concerned may be analysed either as ´decisions' of that association or ´agreements' between the members.'

The notified arrangements apply in respect of the sale of UK published books within the State. They affect the import, distribution and sale of UK published books within the State. As pointed out the majority of books other than schoolbooks sold in the State are imported from the UK.

34. A question also arises as to whether the arrangements also involved some form of agreement or concerted practice between the Association's members and the members of the UK Publishers Association to ensure the operation of system of Resale Price Maintenance for UK books in Ireland. As pointed out the EC Commission stated in its decision on the Net Book Agreement that the arrangement was introduced following a meeting with the UK Publishers Association in Dublin in 1981 to facilitate the operation of the Net Book Agreement in Ireland. Mr. David O'Mahony indicated that he had not been involved in the Booksellers Association in 1981 and so was not aware of what might have happened at that time. It is clear from the documents which the Authority has obtained that the Booksellers Association met certain UK publishers and representatives of the UK Publishers Association. At various meetings of the Booksellers Association proposals were advanced for formal meetings with the Publishers Association. Mr. David O'Mahony told the Authority that he could find no record of meetings between the two associations and claimed that the conversion chart was a purely internal matter.

35. The essential feature of the notified arrangements is that the Association issues a chart to its members to enable them to convert UK prices into Irish pounds. The arrangements have both horizontal and vertical aspects. It is a decision by an association of undertakings and a concerted practice to directly or indirectly fix retail selling prices throughout the State of books imported from the UK. Such an agreement is specifically prohibited under section 4(1)(a) of the Competition Act.

36. The arrangements do not fix specific prices but provide for a uniform method of calculating the amount to be added to the UK publishers' price in order to arrive at the retail price. If booksellers buy foreign currency at different rates then it is possible, under the arrangements, for the price of the same book to differ between different bookshops. Nevertheless this does not alter the fact that the object and, for the most part, the effect of the arrangements is to greatly reduce price competition between retailers in respect of imported books. Indeed in his letter replying to the Statement of Objections the Chairman of the Association states that:

´The pricing chart was introduced so as to ensure minimum disparities in the retail price of books in Ireland and so would be consistent with the principles of the NBA.'

37. To the extent that each individual book title constitutes a unique product, price competition at the retail level is therefore eliminated in respect of each book title imported from the UK. The Authority believes that to some degree certain books are substitutes for one another. While some consumers will wish to buy a particular book by a particular author, others are looking for a particular type of book, whether a thriller or one on gardening, and will therefore choose from among the range of titles available in that particular category. Price competition between retailers in respect of different titles is also restricted. It is true that not all books of a particular type retail at a uniform price. Nevertheless the possibility of retailers offering discounts on such books is eliminated and so competition is restricted between different titles.

38. In addition the conversion chart means that retailers can set their prices in the knowledge that other retailers are likely to charge the same price. Consequently the arrangements reduce the element of uncertainty regarding a competitor's response to a firm's marketing strategy which is an essential feature of competitive markets. As UK published books account for the majority of books sold within the State, price competition between retailers is restricted in respect of a substantial part of the book market within the State. It is also relevant that a number of the letters issued to members advocated the use of the conversion rates in order for them to maintain or improve margins.

39. It is well established under competition law in other countries that horizontal price fixing agreements are anti-competitive. Price fixing agreements have been consistently regarded as in breach of Article 85(1) of the Treaty of Rome. Bellamy and Child point out that:

´Since price is the main instrument of competition, Article 85(1)(a) expressly prohibits agreements, which "directly or indirectly fix purchase or selling prices or any other trading conditions." An agreement to fix prices by its very nature constitutes a restriction on competition within the meaning of Article 85(1).'

40. They go on to state that:

´Article 85(1) is infringed by an explicit agreement between suppliers to fix prices, and also by a concerted practice to restrict price competition, for example informal concertation on the dates and amounts of price increases or the exchange of price information. Similarly the prohibition of Article 85(1) covers not only "prices" in the narrow sense but also discounts, margins, rebates and credit terms. Other agreements which directly or indirectly restrict price competition include agreements not to submit quotations without prior consultation, not to deviate from published prices, not to make public any deviations from published prices, not to quote other than delivered prices, not to give other than cost related rebates, and not to sell "below cost".'

41. Van Bael and Bellis point out that:

´Although there exist no per se rules in EEC competition law, horizontal price fixing arrangements have always been held incompatible with Article 85(1) and have generally been denied an exemption'.

42. In IFTRA the EC Commission found that an agreement between producers of virgin aluminium not to sell below their published prices was in breach of Article 85(1). The Commission found that the arrangements ´provide the parties with means of shelter from competition to the extent that price stability is increased and that the parties are enabled to predict each other's price policy with a reasonable degree of certainty.'

It went on to state that:

´..every producer should have complete discretion to establish his own policy in these matters without risking the accusation that he is violating the spirit of an agreement. The contractual organisation of a system requiring adherence to various existing prices and whereby price stability is encouraged by the recommendations which are made to the parties to use and adhere to price lists.....constitutes a major restriction of competition, both in its object and its effect.'

43. In Cementhandelaren the European Court of Justice ruled that:

´The fixing of a price, even one which merely constitutes a target, affects competition, because it enables all the participants to predict with a reasonable degree of certainty what the pricing policy pursued by their competitors will be.'

The Court upheld the Commission's decision that such an agreement was in breach of Article 85(1) despite evidence that competition from other suppliers meant that the parties to the agreement did not necessarily abide by the agreed target prices. The Commission had argued that:

´The possible malfunctioning of a cartel cannot serve as a criterion for deciding whether or not it falls within Article 85(1).'

44. In the US horizontal price fixing agreements are generally regarded by the courts as a per se violation of the antitrust statutes. This view was originally set out in Addyston Pipe. In Trenton Potteries Stone J, giving the judgment of the US Supreme Court stated that:

The aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition. The power to fix prices, whether reasonably exercised or not, involves the power to control the market and to fix arbitrary and unreasonable prices.'

45. Section 4(1) relates to agreements which have as their object or effect the prevention, restriction or distortion of competition. In the Authority's view the object of the arrangements is to prevent or restrict price competition in respect of UK published books. The European Court of Justice Decision in Cementhandelaren confirms that such an arrangement is prohibited by Article 85(1) even if it does not have the effect of preventing, restricting or distorting competition either because the members of the cartel fail to abide by the terms of an agreement or because they are forced to respond to discounting by non-members. In reality UK published books are generally sold at the same price by the majority of bookshops. It was noted in para 10 above that the conversion chart involves fixing prices which are higher than would be justified on the basis of the actual exchange rate, e.g. where the exchange rate is IR£1 =stg98p, the chart applies a rate of IR£ = stg93p. In the Authority's view it would be extremely difficult for an agreement to raise prices in this fashion unless it was adhered to by a substantial proportion of the firms operating in the relevant market. Thus the effect of the arrangements is to prevent price competition in the market for such books.

46. The Authority wishes to state that in its view it is not necessary to show that an agreement results in higher prices than would otherwise be the case for it to offend against section 4(1). It is the agreement to fix prices per se which is prohibited by that section. By agreeing to fix prices the parties remove an essential element of competition. Such an agreement may not be justified on the basis that the prices fixed are claimed to be fair or reasonable. Nor can the Authority accept the argument advanced by the Association in its letter of 6 July 1994 that the arrangement was only meant to act in the public interest. In enacting the Competition Act the Oireachtas has decided that the public interest is best served by competition. It is not for private parties to decide that the public interest is best served by their entering into anti-competitive arrangements.

47. The Association claimed that the chart merely set out recommendations for its members. The Authority noted in its decision on Optometrists that:

´As a general rule, activities that are lawful when engaged in by competitors acting jointly are lawful for trade associations. Conversely, activities that are unlawful when engaged in by individuals acting together are quite simply unlawful when undertaken by trade associations.'

It also noted that the European Court of Justice had ruled that:

´A recommendation of an association of undertakings, even if it has no binding effect, cannot escape that article [85(1)] where compliance with the recommendations by the undertakings to which it is addressed has an appreciable influence on competition in the market in question.'

There is no indication in the notification or the conversion chart that the prices indicated by the conversion rates are recommended. Even if they were, however, it is clear that compliance with such recommendations by the members has an appreciable influence on competition in the market in question. It is also relevant that before various versions of the code were put into practice they were circulated to the members for comment. Thus in a sense the conversion chart was approved by the members.

48. The arrangements were drawn up to facilitate the operation in Ireland of the NBA an agreement between most UK book publishers which involves Resale Price Maintenance. Resale Price Maintenance (RPM) describes a practice whereby a supplier agrees to supply retailers on condition that they sell the goods at a price specified by the supplier. Such arrangements restrict the ability of retailers to determine their own prices. They also eliminate price competition between retailers for the suppliers' products, assuming that the supplier applies such arrangements to all retailers handling his products.

49. While economic theory suggests that there may be circumstances in which RPM may increase overall economic welfare, most goods and services do not appear to satisfy the necessary conditions for such a result. In addition other methods are available to induce greater efforts by retailers to sell the manufacturers' products. On balance therefore economic arguments indicate that RPM is generally harmful and restricts competition. RPM has been prohibited under the competition laws of most developed countries. Legislation which permitted RPM was repealed in the United States in 1976 and the Supreme Court has held that RPM constitutes a per se violation of the antitrust rules. Legislation prohibiting RPM was enacted in Canada in 1951, in France in 1953 and in the UK in 1964. The UK Competition Act is generally neutral with respect to most forms of anti-competitive behaviour, in that it only prohibits practices which are shown to be against the public interest, and there is no presumption one way or the other as to whether practices are against the public interest. RPM, however, is specifically prohibited by statute. While the latter legislation allows for exemption, there have only been four requests for such exemption, and in only two instances, one involving the Net Book Agreement, has such an exemption been granted. On 23 November 1993 the UK Director General of Fair Trading announced, however, that the NBA was to be re-examined given the changes which had occurred since the decision to exempt the NBA was taken in the 1960s. The Director General subsequently announced that the agreement had been referred back to the Court.

50. The Authority considers that the weight of evidence indicates that RPM is generally restrictive of competition. Consequently an agreement involving RPM or designed to facilitate the operation of RPM, in its view, offends against section 4(1).

51. The notified arrangements, which involve an arrangement between booksellers for converting the price of UK books to Irish pounds and a decision by an association of undertakings, have as their object and effect, the prevention, restriction or distortion of competition in the market for books, other than schoolbooks, within the State, and thus offend against section 4(1). There is some conflict regarding the possible involvement of UK book publishers in the arrangements. It is not necessary for the Authority to decide whether they were in fact parties to the arrangements.

52. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which offends against Section 4(1) but which, ´having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

53. The notifying parties advanced no reasons to support their request for a licence. In the Authority's opinion the arrangements do not satisfy the requirements for a licence as set out in section 4(2). The Authority notes that if an agreement fails to meet any of the requirements specified in section 4(2), a licence cannot be granted to it. In the Authority's view the notified arrangements which involve the restriction of price competition in the book market do not contribute to improving the production of goods or provision of services or to promoting technical or economic progress. Consumers cannot therefore be said to share in such benefits and the restrictions cannot be regarded as indispensable to the achievement of such objectives. UK published books account for a substantial portion of books sold in Ireland. Consequently the arrangements afford the parties involved the possibility of eliminating competition in respect of a substantial part of the relevant market. They do not therefore satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act.

54. It may be that the abolition of such arrangements will result in a loss of business by specialist bookshops to other types of retail outlet or that larger bookshops will gain at the expense of smaller ones. The purpose of the Competition Act is to protect competition not competitors. The essence of competition is that competitors will seek to take custom away from their rivals. At the heart of the view that competition is desirable is the judgment that such activity benefits consumers and enhances overall economic welfare. Consequently the fact that some competitors may be harmed by the elimination of a particular restrictive practice cannot justify the continuance of such a practice. Orthodox economic theory indicates that price-fixing agreements are detrimental rather than beneficial to consumer interests. Breit and Elzinga observed that:

´Economists are almost unanimous in their condemnation of cartels, especially those engaged in price fixing, because no expert has satisfactorily established that consumers will benefit from price fixing. On the contrary economic analysis can show that cartels are inefficient and lessen consumer welfare. It is, therefore, not surprising that antitrusters have the closest meeting of minds on the baleful influence of cartels.'

55. The Authority concludes that booksellers are undertakings within the meaning of the Competition Act and that the Booksellers Association of Great Britain and Ireland - Irish Branch, is an association of undertakings. The notified arrangements constitute an agreement and/or a concerted practice between undertakings, namely the booksellers who are members of the Association. They also constitute a decision by an association of undertakings. In the Authority's opinion the arrangements have, as their object and effect, the prevention, restriction or distortion of competition in the market for books within the State and therefore offend against section 4(1). They do not satisfy any of the requirements for a licence under section 4(2). The Authority therefore refuses to issue a certificate or grant a licence to the Booksellers Association of Great Britain and Ireland (Irish Branch) Currency Conversion Chart, notification no.CA/904/92E, notified to the Authority on 30 September 1992 under section 7 of the Competition Act 1991.

For the Competition Authority

Patrick Massey

Member

2 September 1994.