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Harmless marketing exercise or unfair tie-in? - International Law Office

International Law Office

Company & Commercial - Pakistan

Harmless marketing exercise or unfair tie-in?

August 30 2011

Facts
CMTA findings
Commission decision


The Competition Commission has passed an order on a show cause notice issued to Cinepax Limited for prima facie violation of Section 3(1) of the Competition Act 2010 (read with Sections 3(2) and 3(3)(c)), which covers abuse of dominance by tying-in.

Facts

Cinepax operates a multiplex cinema in Pakistan. The commission received a complaint which alleged that Cinepax was tying in cinema tickets with food coupons by making the sale of tickets contingent on the mandatory purchase of food coupons worth PRs50.

The commission's Cartels, Monopolies and Trade Abuse Department (CMTA) informed Cinepax of the complaint, sought an explanation for its policy and requested historical pricing information on its cinema tickets.

Cinepax responded that for a certain period, customers had been required to buy a PRs50 voucher with a ticket with a face value of PRs250 (or PRs150 for matinees). This had been a temporary marketing exercise and an attempt to make an overall price increase more acceptable to customers. Before this period, there had been no increase in ticket prices for nearly 17 months, although the average price of consumer goods had risen considerably in that time. The marketing exercise was discontinued on April 7 2010; thereafter, only PRs300 tickets were sold (reduced to PRs200 for matinees).

CMTA findings

The CMTA found as follows:

  • The products in question are distinct in nature and are not generally sold together. Although food courts are common in multiplexes and high-end cinemas, where customers buy food and drink to consume before, after or during films, the mandatory sale of food coupons is not common practice. This form of tie-in places an unnecessary economic burden on customers, who have no choice but to buy a food coupon in addition to a cinema ticket. Such arrangements are even more problematic when there is only one food service provider and when food purchased externally may not be consumed on the premises, as was the case in this complaint.
  • The fact that the arrangement was part of a marketing strategy to make an imminent price rise more acceptable was irrelevant, as the policy had all the characteristics of a tie-in. Notices at the cinema and the information that Cinepax provided to the commission clearly stated that the food coupon was priced separately from the cinema ticket, but was being sold with it.
  • This type of arrangement is a familiar tactic whereby a dominant entity in a particular market tries to benefit from access to another market by coercion. Cinepax, a cinema operator, was trying to benefit from the food retail market by coercing customers into purchasing the food coupons. Many cinema-goers may not have wanted to buy products from the food court, or to buy or consume food from any outlet. Therefore, Cinepax's actions considerably restricted their freedom of choice.

The CMTA found that the arrangement, which had been in place for approximately seven months, violated Section 3(1), as read with Sections 3(2) and 3(3)(c). It recommended that the commission proceed against Cinepax for violating the provisions of the act.

Commission decision

The commission initiated proceedings under Section 30 and issued a show cause notice, requiring Cinepax to explain why its practice should not be considered abuse of dominance under Section 3.

The commission was inclined to accept Cinepax's submissions that the arrangement was primarily an attempt to make the price increase more acceptable to customers, as it had been discontinued before the commission initiated its enquiry and the ticket price increase had taken place shortly after the end of the arrangement. However, if an undertaking is dominant in a particular market and forces consumers to buy a particular product, this amounts to abuse of a dominant position which prevents, restricts, reduces or distorts competition in the relevant market.

In considering the relevant market, the commission noted that Cinepax had a dominant position based on distinct product (ie, premium cinema). The product market was distinguishable from other cinemas operating in the same geographical market. This view was based on the position that parallel markets cannot be deemed interchangeable or substitutable by consumers, even if their intended use is the same. The ambience, quality of auditorium and screen, service and ticket prices at Cinepax all put it in a distinct market. The commission disagreed with Cinepax's contention that it should be viewed as one of 11 cinemas in the twin cities of Rawalpindi and Islamabad, holding that Cinepax was the only premium cinema in the two cities, whereas the other cinemas were in a different category.

Had Cinepax offered free food, including a food coupon included in the price of the ticket (ie, without bifurcation or bundling), there would have been no violation of the act. However, as the food was sold in the form of a food coupon which customers were obliged to purchase, the arrangement was a 'tie-in' for the purposes of Section 3(3)(c).

Cinepax maintained that the violation had been inadvertent and of short duration, and had ceased before the commission's involvement. Moreover, Cinepax had offered to host five free screenings for the underprivileged on its largest screen. In light of these factors, the commission took a lenient view and imposed no penalty on Cinepax.

For further information on this topic please contact Samiya Fikree or Ferzeen Bhadha at Vellani & Vellani by telephone (+92 21 3580 1000), fax (+92 21 3580 2120) or email (samiya.fikree@vellani.com or ferzeen.bhadha@vellani.com).


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