Banning below‐cost resale in France: the impact on pricing decisions

Abstract

Purpose

In France, the consumer prices of major industrial brands have been rising for a number of years, while the price differential between these brands and the retailers' ones has widened. These consequences were attributed to the French legislation, particularly to the Galland Act, enacted in 1996, which regulated the banning of below cost resale. The aim of this paper is to explain the effects of the legislation on price competition within the grocery sector and to analyse the effects of the Dutreil Act, enacted in 2005, which modified the Galland Act.

Design/methodology/approach

The paper carried out an analysis of economic, strategic and marketing literature, as well as professional surveys, statistical data, balance sheets of the main retail groups and the authors did some interviews with retail and industry professionals.

Findings

This paper highlights the fact that, although price competition has been partially restored by the Dutreil Act (2005), the latter still has had some very negative consequences on industry/distribution relationships, on negotiations and on development of retailers' expertise. According to the authors, the same consequences will continue in the future, even after the new Chatel Act enactment (December 2007), unless the government will modify the existing regulation of negotiations.

Research limitations/implications

The empirical data that would enable an evaluation of the impact of the legislation – such as retail prices and gross margins of different kinds of brands and retail formats, specially the size of merchandising and promotion fees (marges arrières) – are limited (and some of them controversial). Moreover, the explanation given in the paper is not sufficient to distinguish the inflationary impact of the legislation from that of other factors, which may have contributed to the same effect.

Originality/value

The main value of the paper is the explanation of the continuous negative impact – in terms of transaction costs and juridical risks – of legislation on negotiation practices between industry and distribution. The paper highlights the links between legislation, the negotiation practices and the price definition by retail and manufacturing firms.

Citation

Colla, E. and Lapoule, P. (2008), "Banning below‐cost resale in France: the impact on pricing decisions", International Journal of Retail & Distribution Management, Vol. 36 No. 10, pp. 746-758. https://doi.org/10.1108/09590550810900973