Irish Competition Authority Decisions

1. This decision concerns a standard verbal agreement between Musicmaker Ltd and the retailers for certain of its products. The agreement was notified on 30 September, 1992 with a request for a certificate under Section 4 (4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4 (2) of the Competition Act.

2. The notification concerns a standard verbal agreement between Musicmaker Ltd and its retailers for the supply and stocking of musical equipment and allied products.

3. Musicmaker Ltd is involved in the importation, retailing, distribution and supply of musical instruments, sound and recording equipment and allied products to retailers throughout the state. Musicmaker Ltd uses the trade name M.I.D.I. for the purpose of distributing their products. The other parties to this standard agreement are the retailers who stock and sell the equipment and accessories supplied to them.

(c) The products and the market

4. The products which are the subject of this notification are amplification equipment and allied products. The products are distributed by the company to the various retailers for sale to the public. The majority of the products are imported.

5. The parties have stated that the market for these products is primarily centred in the Dublin area with about 20 retailers located there and approximately one hundred located throughout the rest of the State. There was a small number of retail outlets in the Dublin area market and outside the Dublin area subject to stockist agreements with Musicmaker during 1995. Some products are sold through record and electrical shops and open air markets. A substantial volume is sold directly to end users from outlets based in Northern Ireland and the UK. Most of the distributors are based in Dublin and some distributors operate as retailers too. Products are also obtained from outside the state at international fairs, or through direct contact with the manufacturers/distributors. The company estimated that the value of the retail trade was approximately IR£50 million per year and that of the distributive trade approximately IR£33 million per year.

6. The notified agreement is a standard verbal agreement made between Musicmaker Ltd and the retailers who stock and sell the products distributed by the company, under the trade name M.I.D.I. The current agreement has been in use since August 1991. Under the terms of the agreement the customer agrees to 'maintain an agreed schedule of product in stock and on display'. The company can vary the actual items on the schedule to suit individual retailers markets. The schedule has been designed to meet the needs of the Irish market and the requirements for stock volume or financial investment are in line with that. The company agrees, for as long as the agreement is in force, ' to supply all product within that brand at an agreed settlement discount regardless of order size'. An additional discount in the form of a launch incentive may be included in the initial order as well as free display or promotional material. The company also advertises the names and locations of those retailers who have agreements with it and first refusal of special promotions is offered to them.

7. The company operated a stockist programme in respect of one product only - Marshall Amplification - supplied by Marshall Amplification plc. The stock volume requirement was predetermined by the company. The stock volumes chosen related to the company's assessment of minimum requirements necessary to service the normal or average market outside the Dublin area market. The company would review any suggested alteration, upon request by a retailer, based upon market conditions in the retailer's market area. Substitution or reduction would be allowed in rare circumstances, if at all. Such facility was reviewed by the management of the company and was not used as a means to entice a retailer to commit to becoming a stockist of the product. Marshall main dealers all received the same discount terms. These included a trade discount, a discount was available for payment within 30 days and a cash with order discount. The Settlement discount (payment within 30 days and CWO) offered was only available to retailers whose accounts were kept to credit terms (accredited) and who maintained the agreed main dealer stock levels. The company does not operate a stockist policy that combines different suppliers’ branded products. Products were reviewed periodically by individual supplier/brand to asess whether a stockist policy was appropriate.

8. Musicmaker Ltd submitted, in support of their request for a certificate, that without a domestic Irish distributor technical assistance and support tended to be supplied from the UK by fax/telephone, products requiring repairs had to be returned to the UK at the retailers’ cost and this resulted in an ineffective technical support and service that affected the retailer adversely and served the consumer inadequately. The order volume and value was comparatively low in Ireland due to the size of the market. The major external distributors frequently delayed and disregarded orders and their sales representatives only visited the major shops in the cities. Major UK distributors had used the Irish market as a dumping ground and this resulted in distorted competition. A significant portion of retailers in smaller towns had difficulties in obtaining supplies at competitive prices and technical assistance and support was even more difficult to achieve. Supplies were not restricted to retailers who did not make a commitment to the agreement.

9. They further submitted that a domestic Irish distributor who had invested in acquiring the technical knowledge suitable to the products, had made the necessary financial investment in premises and stock, had acquired local knowledge of the market and needed the business of the smaller retailer accounts was in a better position to provide the sales and technical back-up necessary to serve the retailer and the consumer. They maintained that because of the size of the market in Ireland and the cost of an investment in same, this could not be justified without guaranteed sales. There was insufficient incentive to maintain the service supplied without the existence of this kind of agreement. Products would originate in the UK and this was not in the interest of the retailer or the consumer. They also submitted some arguments in support of their request for a licence but these are not considered here.

10. 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'.

11. 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.' Musicmaker Ltd is engaged for gain in the business of the distribution and also retail of various musical and sound equipment. The retailers are all engaged for gain in the business of selling the musical and sound equipment. Consequently, they are all undertakings within the meaning of Section 3(1) of the Competition Act. The agreement is therefore an agreement between undertakings.

12. The notified arrangements constitute a verbal agreement whereby a number of retailers agree to become official stockists of the Marshall range of musical goods by purchasing from Musicmaker and maintaining certain minimum levels of stock in that range while Musicmaker agrees to recognise them as official stockists and supply stock at discounted prices. Retailers are not prevented from sourcing similar stock elsewhere or importing the Marshall range directly themselves and are free to terminate the agreement at any time. There are no restrictions on Musicmaker from supplying other retailers who do not commit themselves to the stocking agreement. None of the provisions in the agreement have as their object or effect the prevention, restriction or distortion of competition in the State. The agreement does not offend against Section 4(1) of the Competition Act.

13. In the opinion of the Authority Musicmaker Ltd and the retailers are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified agreement constitutes an agreement between undertakings. In the Authority's opinion the agreement does not have, as its object or effect, the prevention, restriction or distortion of competition.

14. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the standard stockist verbal agreement between Musicmaker Ltd and the retailers whereby Musicmaker gives certain discounts to retailers who take minimum supplies of Marshall products (notification no. CA/1047/92E), notified on 30 September 1992 under Section 7, does not offend against Section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

19 April 1996.