Korg UK, Roland UK Fined For Breaking Competition Law

The UK’s Competition and Markets Authority has announced that it has fined Korg UK & Roland UK a total of £5.5 million, in 2 separate cases, for restricting online discounting of musical instruments.

Each of the companies was fined fined for implementing resale price maintenance (RPM), essentially setting a minimal sales price for their products. While some argue that setting a minimum retail price protects smaller bricks and mortar music stores against big online retailers, RPM is illegal in the UK.

Separately, a retailer of musical instruments, GAK, has also admitted to engaging in RPM with Yamaha and agreed to pay a maximum fine of more than a quarter of a million pounds to settle the case. This is the first time the CMA has taken enforcement action against a retailer in a resale price maintenance case.

The fines follow earlier fines against Casio and Fender, bringing the total fines imposed by the Competition and Markets Authority (CMA) for this illegal conduct in the musical instrument sector to £13.7 million.

The CMA has also written to almost 70 manufacturers and retailers across the sector, warning them that the CMA suspects their online pricing arrangements may have been illegal and that they need to ensure they are complying with the law or potentially risk an investigation and fines. The CMA has not announced which companies it has sent warnings to. (Synthtopia has requested this information).

The CMA also issued these guidelines for manufacturers and retailers:

  • If you are a supplier:
    • You must not dictate the price at which your products are sold, either online or through other sales channels.
    • Policies that set a minimum advertised price for online sales can equate to RPM and are usually illegal.
    • You must not use or intimate the use of threats, financial incentives or take any other action, such as withholding supply or offering less favourable terms, to make retailers stick to recommended resale prices.
    • You cannot hide RPM agreements – restrictive pricing policies in business-to -business arrangements are illegal whether verbal or written. Equally you cannot try to use apparently legitimate policies (e.g. selective distribution agreements) to conceal RPM practices. You face higher fines if you do this.
    • You must take extra care if you use price monitoring software – monitoring your market position is legitimate, but you must not act on pricing information in a way that could limit your retailers’ freedom to set their own resale prices.
  • If you are a retailer:
    • You are entitled to and must set the price of the products you sell independently, whether online or through other sales channels.
    • Suppliers are not usually allowed to dictate the prices at which you sell or at which you advertise their products online.
    • If you have agreed to sell at fixed or minimum prices with your supplier, you may both be found to be breaking competition law.
    • You should not ask your supplier to influence your competitors’ prices – do not be tempted to push for consistent resale prices or to “police” RPM by reporting your competitors’ prices to your suppliers. If you instigate RPM conduct you can face higher fines and directors can risk being disqualified from managing companies.

 

16 thoughts on “Korg UK, Roland UK Fined For Breaking Competition Law

    1. US retailers use simple tricks to get past the agreed upon price for gear by breaking box seals and then labeling them as “B-Stock” or “Demo” or whatever. Like if you see an item listed on Reverb as “Mint” by a retailer, that’s a pretty good indication that it’s just a box breach and not a return.

    1. Trust me, you don’t want it. The UK industry is in a really sad state. The only reason the US has big shops, with big showrooms, a nice experience with knowledgable staff is because they make a good, predictable profit, allowing them to stay afloat and pay fair wages. For some reason the UK government doesn’t see merit in this policy. It’s great for consumers, but awful for the business involved selling the gear.

      1. Are you claiming that the only way for musical instrument retailers to operate a good business is by engaging in price fixing? It appears that you are.

  1. Depending on your ethics that could go either way.

    Note that Synthhead includes the following:
    “While some argue that setting a minimum retail price protects smaller bricks and mortar music stores against big online retailers, RPM is illegal in the UK.”

    That’s a very different situation to the questions about cheap labour, tax havens, social media conduct & IP infringement that Behringer’s faced. Consider the old court cases about their Boss & Mackie clones, bitchy/racist posts about Peter Kirn, relocating HQ to the British Virgin Islands & their Chinese manufacturing.

    To place Roland & Korg on a shit list needs to consider context not included here, such as:
    – Did they know they were breaking local laws?
    – Do they plan on changing their business plans as a result?
    – Do they plan on contesting the fine?

    Sorry if this is a double post.

  2. I can see pros and cons of both. Cons of a minimum advertised price: dealer will push you into buying whichever brand is offering the highest margin, so his advice is not transparent. Cons of no minimum advertised price: dealer needs to make money somehow, so pushes you into buying his overpriced accessories, warranties etc.. The latter is annoying; the former may make it really hard for new companies.

    This is not just in music tech of course, it’s everywhere.

    1. I believe you are missing the point. It has nothing to do with what a dealer wants you to do.

      What it means is that for any instrument made by any of the companies, you cannot find a better deal online than you would find in a real life store.

      Due to a minimum advertised price, the margins from profit are so thin, that the no one retailer can really afford to be selling it for much less than the other retailer.

      Basically every retailer, either real life or online has to sell it for roughly the same price. There isn’t much room to undercut

      And no it’s not everywhere. It has been systematically uprooted from most consumer electronics and tech markets.

  3. Interestingly, the GAK fine was in relation to online sales, not sales in its stores. And also interesting that GAK got an extra fine for ignoring a warning, and Yamaha got no fine because they were helpful. (This is all according to UK news media.)

    I can’t help thinking these are all quite large sums for the companies involved. Maybe they’re making more money off synths than we think, or maybe it was mainly to do with the home keyboards / amps / pedals market which is probably higher volume.

  4. very interesting stuff thanks for the post on this – i just encountered some relating stuff this past week when getting a roland mc-707; the orignal planned store apparently isn’t fully legit (prosoundgear), in 2 weeks after order they had shipped nothing so I got refund and went to zzounds to do their “lowest price guarentee” thing; and was approved for a beaten $849 ($842), however the email didn’t include an offer code link like in the past – it said I had to call for the offer (maybe due to amount threshold?); anyways I called them up and then they tell me “oh that site is not on our authorized reseller list so we don’t pricematch them sorry” – and then I told him that I already recieved the email saying it was approved, so he checked it out and said they would honor it if they “mistakenly” sent me an approval for that – and then that was that, that was yesterday and it’s already out for delivery today! anyways my (admittedly excited) story aside, i wonder about how this sort of thing affects why we never see most brands products ever on sale on the music stores, the only store I ever see having sale prices on new Roland/Korg/other higher brands stuff atleast in synths etc is usually perfect circuit, and thats only on special holiday sales etc black friday, indeed even the price i got was because of a 15% off promo code i found not because of any special sales or anything showing lower than msrp; i wonder if that prosoundgear just decided not to ship my order because it was for a bundle that was supposed to include a $140? m-audio keystation 49mk3 and some other bits for the normal msrp, PLUS the %15 off, maybe that cut too much into their margins for comfort and just sat on it until i’d cancel… they have very mixed and shady reviews i found – beware!

  5. The fines are high simply because they want to make examples. Going after the big suppliers (Fender, Korg, Roland and Casio) makes a big splash as everyone, whether you make music or not, knows those brands.

    In practice this law is meant to support smaller retailers so that they can complete against larger ones by undercutting price and getting the business. Larger retailers are meant to have more stock available with more choices, better support/delivery rates etc. and be tougher on keeping their margins, so it’s up to the customer to decide how they want to balance price vs availability/support.

    But it actually has the complete opposite effect; Suppliers will often give better discounts to larger retailers because they’ll spend more with them (eg. buy more stock, spend on dedicated Demo facilities & advertising, training staff etc.), whereas smaller retailers will order stock as they need it (to fulfil a closed sale, keeping a lot of stock is very expensive!) and get a low margin in return. This means larger retailers will happily lower the price and get the sales (Price matching), whilst still keeping some of their extra margin (and selling you cables and accessories to make up for it) that the smaller retailer simply can’t afford to match (on some low margin items like high end guitars they could literally lose money on a sale). On the whole, the big retailer can make up for low margins by selling volume, but the small retailer doesn’t have that option, so their margins get tighter and their businesses close.

    Then there’s the fun phenomenon of downward spiralling prices as everyone starts automatically matching everyone else, which sounds great to the customer until you realise that as the prices get trashed, no retailer (though especially the small ones) will want to touch the products affected as the margin will be too low.

    Every year a bunch of small retailers close their doors because they can’t actually compete, and then every decade a couple of big retailers close their doors because they need to keep getting bigger to get enough volume to be profitable (which means opening new stores, becoming even more aggressive on pricing etc), but the music gear market isn’t actually all that big.

    These laws are really outdated and only made sense before online sales really took off (and you always went to you local store to get everything). The UK should adopt a system similar to the US with MAP (Minimum Advertised Price) as that puts every retailer (big or small) on a level playing field.

    If the laws don’t change, Amazon will pretty much be the only retailer left in a few years time and then they’ll dictate prices and everything else themselves…

    1. Nailed it! MAP allows the little guys to survive and thrive and prevents the Guitar Walmarts from controlling the business. The scenario stated above happened in the 80’s when big dealers were willing and able to advertise below cost of the small guys to kill their business…and they did. EU/UK needs a MAP policy as well. It is good for all business which is then good for the customer. Amazon is known for violating MAP and having a crazy return (to manufacturer) policy so more companies are refusing to deal with them. They will still allow a private store to host an Amazon sale but MAP is still enforced.

  6. Absolutely correct. The minimum sales price IS the only thing that can protect smaller retailers. Unfortunately, the UK hierarchy, being the fascist statesmen they undoubtedly are, regard small businesses like GAK as an insignificant hindrance towards their goal of creating a 1984-esq dystopian one supermarket system.

    No multi-million backhanders from GAK, plenty from Walmart, I’m sure.

  7. Roland “how can we make our prices higher…”
    Behringer “how can we make our prices lower”.

    Not hard to see who is looking after the customer. Says it all.

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