Multichannel Distribution and the Impact of ‘Footloose’ Consumers

Abstract

At a recent conference, I addressed the need to shape and sharpen the debate on the appropriate competition regime for the age of on-line distribution. The world has changed. On-line sales and ‘platformisation’ have opened multiple new distribution dimensions that may require a fresh look on the application of competition rules. The scale and speed at which businesses and consumers can process information are unprecedented, and with that the impact of issues like information asymmetry and free-riding may take on a different level of significance. A lot of study has been devoted to the way internet shapes distribution both from the business and consumer perspectives. The potential effects of increased transparency, lower search costs, and network effects have been well described. However, in my opinion, the impact of the rapid evolution of the consumers’ role is underexposed in the debate on the appropriate competition regime. Consumer behaviour today is no longer comparable with the Grundig–Consten era. Nor is it comparable with the time of drafting the Block Exemption on Verticals, nor even the time the Block Exemption was revised in 2010. I believe that the debate would benefit from a clear consumer welfare perspective. What is driving business response to the opportunities and challenges that internet offers? Is the business response aimed at legitimately protecting investments that benefit consumers, or is it, in a harmful way, aimed at shielding itself from strong price competition? There are two developments which I find very interesting from an enforcement perspective. Firstly, the internet has revolutionised the way consumers search and compare when shopping. A good example is the development of personalised shopping comparison applications for mobile phones. With such an app, consumers can, while in a shop, scan a product’s barcode and get an instant overview of the price of the product in competing shops. Consumers can then decide on the spot where to buy. They can purchase in the shop if they like the offer. Or, they can immediately purchase at an on-line competitor through the app, and the goods might even be shipped before they leave the store. Or, they could try and negotiate better terms with the shop owner. Such applications have existed for some time. What is striking is the rapidity with which they are becoming mainstream. A prime-time commercial was recently aired on Dutch national television for such a ‘free’ comparative shopper app. The app ranked high in the App store and in Google play. With apps like this, consumers gain bargaining power. We know that this is essentially a good thing. However, we also know that there are consequences for producers and distributors. To what degree will retailers be prepared to invest in services for products that require presales services? Or, for luxury products, where a shop experience is deemed essential? With today’s technology, high smartphone penetration and ubiquitous broadband connections, it is extremely easy for competing on-line shops to lure consumers away with even a slightly lower price. Consumers are becoming footloose, instantly and on a large scale. As a result, the possibilities for competing retailers to free-ride on shop investments are growing at an unprecedented pace. We cannot ignore the potentially negative impact on investments that may result. Secondly, Platformisation, a term used by Hederstrom and Peeperkoorn in a recent article in this Journal, describes the phenomenon that platforms are becoming more and more essential for on-line trade. I think that the importance of consumer data for many on-line platforms brings legitimate concerns. While competition and privacy interests may coincide, they may at times also conflict. For example, on-line platforms may have an incentive to reserve consumer data for their own use. Competitors may face an unsurmountable barrier if certain data are really crucial to their business but are