Alpha is a manufacturer of specialist medical equipment, mainly used in hospitals throughout the European Union. It is one of 4 major companies in the industry, and the respective market shares are: Alpha (38%), Beta (21%), Gamma (18%), and Delta (8%). Alpha has begun the process of acquiring Delta and is confident the merger will be cleared (either with or without commitments), in part because Delta is rumoured to be in danger of becoming insolvent. Alpha’s bosses are anxious for the merger to be completed as quickly as possible and have asked Delta to share key information from their marketing department, so that post-merger planning can continue while they await clearance from the European Commission. For the time being, however, the companies are otherwise still operating as separate entities.
Alpha operates a network of selective distribution agreements with authorised distributors across the EU. These distributors have been chosen according to certain criteria relating to their capacity to promote Alpha’s products and provide adequate aftersales service, but there can only be a maximum of two authorised distributors in each Member State. One key condition of these agreements is the prohibition of the sale of Alpha products via third party websites. Consumers can only purchase directly from the distributors’ websites, to maintain confidence in the quality of the products and the prestigious image of Alpha’s brand. In addition, while there is no maximum price set for Alpha’s products, its distributors are strongly incentivised to focus on quality over price.
Most of Alpha’s revenue comes from the sale of x-ray printers. These used to be sold with a generic ink tank, which could be refilled using any commercially available x-ray printing ink. From 2020, Alpha began changing the design of its printers so that they could only work with disposable ink tanks sold by Alpha. These use a computer chip to ensure compatibility but cost more than double the price of refilling the ink in the old printers. There are no alternative compatible ink tanks on the market and so hospitals have no choice but to agree to Alpha’s pricy subscription model for the supply of replacement ink tanks. In their marketing material, Alpha explains that the modification was made to ensure the highest quality of x-ray printouts, as it was concerned there might be a danger of misdiagnosis of patients because of poor quality printouts where hospitals had refilled the old printers with inferior quality third-party ink. Although there are other x-ray printers on the market, hospitals are reluctant to switch away from Alpha’s printers, because they have the most comprehensive after sales service network and because it would require them to re-train staff.
Provide a critical analysis of the issues in EU Competition Law that are potentially engaged by this scenario.
