U.S. FTC reaches consent agreement over alleged online collusion
By Gabriele Accardo
On December 16, 2015 the U.S. Federal Trade Commission approved a final order settling charges that Step N Grip, LLC, a company that sells rug accessories designed to keep rugs from curling at the corners, illegally invited its closest competitor to collude on prices of products sold on Amazon.com where both companies sell most of their respective inventory, according to the FTC.
Step N Grip generally sold one of its rug accessories on Amazon.com for $13.95 per package, whereas its closest competitor sold its competing product on Amazon.com for $16.99 per package.
The FTC’s complaint alleges that in June 2015 Step N Grip and its closest competitor reduced prices to compete with each other and gain sales. After a week of rivalry where Step N Grip’s competitor would lower its price on Amazon.com in order to compete more aggressively with Step N Grip, Step N Grip sent an email message to its closest competitor that read: “We both sell at $12.95? Or, $11.95?”
After that communication, Step N Grip raised the price of its rug device to $12.95. However, Step N Grip’s competitor reported the communication received from Step N Grip to the FTC.
According to the FTC, Step N Grip’s invitation to collude was an unfair method of competition that violated Section 5 of the Federal Trade Commission Act.
Under the settlement agreement, Step N Grip is required to stop communicating with its competitors about prices. It is also barred from entering into, participating in, inviting, or soliciting an agreement with any competitor to divide markets, to allocate customers, or to fix prices; and from urging any competitor to raise, fix, or maintain its price or rate levels or limit or reduce service. The order is in effect for 20 years.
This is yet another case where U.S. antitrust authorities tackle an alleged antitrust violation in the online environment, showing features of traditional violations, such as direct contacts between competitors. Online marketplaces such as Amazon.com and eBay are very powerful sales channels, which allow small sellers to reach a large number of potential customers.
An inherent feature of such online platforms, and generally of the Internet, is that they enhance market transparency, allowing customers to easily compare prices and pick the product of their choosing at the best price. Sellers too have the possibility to monitor more easily what their competitors do, even with the use of customized software. Last 6 April 2015, the U.S. Department of Justice’s Antitrust Division announced the first criminal prosecution against an online conspiracy, in which certain companies selling posters on the Amazon Marketplace adopted specific pricing algorithms with the goal of coordinating changes to their respective prices and wrote a computer code that instructed algorithm-based software to set prices in line with the agreement (see Newsletter 2/2015 for additional background, as well as the following article “U.S. DOJ announces second criminal prosecution into online price fixing”).