Advisory to Government Agency on Proposed Distribution Arrangement between a Distributor and Manufacturers

A government agency intended to facilitate a collaboration between a number of manufacturers and a distributor, which would enable each manufacturer to reach out to more customers and reap economies of scale through aggregating the output of the manufacturers. Under the proposed arrangement, the selling price to customers would be set by the distributor. But, depending on the selling price, the distributor would share a significant part of the profits with the manufacturer, but would not bear any losses.

CCCS advised that the distributor may have an ability and incentive to coordinate the manufacturers’ selling prices, as the distributor is able to set the selling prices of the competing manufacturers and receive a significant share of the profits from the sale. CCCS advised that the arrangement would less likely give rise to competition concerns if the distributor is a reseller that bears all the financial and commercial risks after purchasing the output from the manufacturers. Alternatively, the distributor may operate as an agent, with the manufacturers making their own independent decisions on their respective selling prices.