This is the prescribed textbook for your course. Available NOW at your campus bookstore! Copyright © 2000 McGraw-Hill Australia

Restrictive trade practices Chapter 15

Objectives of Trade Practices Act 1974 (Cwlth) To improve industry efficiency To promote competition in the market To provide consumer protection Copyright © 2000 McGraw-Hill Australia

Constitutional basis AUSTRALIAN CONSTITUTION S51 Allows laws made with respect to corporations, trade and commerce Trade Practices Act 1974 (Cwlth) Competition Policy Reform Act 1995 (Cwlth) Copyright © 2000 McGraw-Hill Australia

Administration of the legislation Australian Competition and Consumer Commission (ACCC) Responsibility for bringing proceedings for contravention of restrictive trade practices provisions Grants authorisations, permitting conduct that might otherwise be in breach of the Act General research, public information and guidance role Copyright © 2000 McGraw-Hill Australia

Administration of the legislation HIGH COURT FEDERAL COURT AUSTRALIAN COMPETITION • Contravention of TRIBUNAL restrictive trade practices • Appeals against decisions authorisation INDIVIDUAL AUSTRALIAN COMPETITION ACTION AND CONSUMER COMMISSION (ACCC may intervene • Administers the Act if in public interest) • Brings action against those that contravene the Act Copyright © 2000 McGraw-Hill Australia

Copyright © 2000 McGraw-Hill Australia Definitions Market - Includes all sellers competing for the same buyers. Competition - Is a mechanism that ensures consumer needs are provided at cheapest costs by businesses through control of the use of society’s resources. Copyright © 2000 McGraw-Hill Australia

Trade Practices Act (TPA) Part IV Section 45: Agreements or covenants Section 46: Monopolies Section 47: Exclusive dealing Section 48: Resale price maintenance Copyright © 2000 McGraw-Hill Australia

Trade Practices Act (continued) Part IVA Section 51AA: Unconscionable conduct Part V Section 52: Misleading and deceptive conduct Section 60: Harassment and coercion in relation to the supply of goods and services Section 61: Pyramid selling Section 63A: Sending unsolicited cards Section 64: Payment for unsolicited goods or Copyright © 2000 McGraw-Hill Australia

Trade Practices Act (continued) Part V Section 65-65D: Safety of products sold to consumers; product information requirements Copyright © 2000 McGraw-Hill Australia

Section 45: Agreements or covenants affecting competition Must prove competition has been reduced Prohibits the making of contracts, arrangements or understandings containing exclusionary provision, or with the effect of substantially lessening competition in the market place. Examples: - market-sharing agreements for territory - restrictions on output produced - limited amount of discount for areas - limited participation in other associations - limited numbers allowed to participate Copyright © 2000 McGraw-Hill Australia

Section 45A: Price-fixing agreements Do not need to prove competition is reduced Prohibits “horizontal” price-fixing agreements, by contract, arrangement or understanding, to fix, control or maintain prices. Prohibits the fixing/controlling/maintaining of prices through the practice of ensuring the same - prices - discounts - allowances - rebates - credit for businesses at the same level of commercial activity e.g. retailers. Copyright © 2000 McGraw-Hill Australia

Section 45B: Covenants annexed to or running with land If they substantially lessen competition in market in which corporation or person supplies or acquires goods or services. Copyright © 2000 McGraw-Hill Australia

Section 45C: Price-fixing covenants Do not need to prove competition is reduced Prohibits covenants that have effect of price fixing, whether competition is lessened or not. i.e. Practice of - fixing - controlling - maintaining prices via allowing the same - prices - discounts - allowances - rebates. Copyright © 2000 McGraw-Hill Australia

Section 45D: Prohibits secondary boycotts i.e. When two parties engage in conduct that hinders or prevents a third party from supplying, acquiring or from otherwise dealing with another party. If it causes substantial loss or damage, lessening competition. Copyright © 2000 McGraw-Hill Australia

Section 46: Abuse of market power Prohibits corporations with a substantial degree of market power from taking advantage of that power to: - substantially damage or eliminate a competitor - prevent entry of a competitor into any market - prevent or deter anyone from engaging in competitive conduct in any market. Copyright © 2000 McGraw-Hill Australia

Elements affecting market power The ability of a firm to raise prices without losing customers The firm’s conduct in the market is not affected by competitors The market share of the firm The existence of vertical integration The extent to which new participants can enter the market Copyright © 2000 McGraw-Hill Australia

Section 47: Exclusive dealing (vertical restraint) Prohibits a supplier from imposing restrictions on the freedom of its customers to deal with others, and vice versa, if substantially lessening competition. Copyright © 2000 McGraw-Hill Australia

Copyright © 2000 McGraw-Hill Australia Prohibited actions Supplying goods and services on the condition that: the purchaser does not acquire goods or services from a competitor of the supplier the purchaser accepts restrictions on the right to resupply goods the purchaser acquires other goods or services from a third party. Acquiring goods or services on condition that the supplier accepts some restriction as to the freedom to supply to third parties. Refusing to supply goods or services because the purchaser: has dealt or refused to cease dealing in a competitor’s products has failed to accept some restriction on the right of resupply refuses to acquire other goods or services from a third party. Refusing to acquire goods or services because the supplier refuses to accept some restriction on the right to supply third parties. Aiding and abetting, procuring, counselling or inducing any corporation to engage in any of the conduct cited above. Copyright © 2000 McGraw-Hill Australia

Section 48: Resale price maintenance (vertical price fixing) Prohibits a supplier of goods and services from stipulating the minimum price at which goods to be supplied by them can be resold. S96-100: Relevant qualifications and definitions required for s48 Copyright © 2000 McGraw-Hill Australia

Copyright © 2000 McGraw-Hill Australia Section 50: Mergers Prohibits mergers and acquisitions if likely to substantially lessen competition in a market, including substantial ‘regional’ markets. (Authorisation of mergers is available under S88.) Copyright © 2000 McGraw-Hill Australia

Matters to be considered for mergers The actual and potential level of import competition in the market Barriers to entry into the market The level of concentration in the market The extent to which substitutes are, or are likely to be, available The degree of countervailing power in the market The likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase profits or profit margins Copyright © 2000 McGraw-Hill Australia

Section 50A: Acquisition outside Australia Prohibits entity gaining dominance of an Australian company through acquisition of overseas interests. Copyright © 2000 McGraw-Hill Australia

Exceptions to restrictive trade practices provisions Section 51 provides a number of exemptions to the prohibitions above, including: Conduct authorised by legislation Industrial agreements covering working conditions Restrictive provisions in employment contracts Contracts requiring compliance with prescribed standards Partnership agreements Arrangements relating to copyright or patterns Provisions in a contract for the sale of a business to protect the goodwill of the business. Copyright © 2000 McGraw-Hill Australia

Authorisations (except for S46: Misuse of power) Sections 88-91: For conduct which may breach provisions, allowed if - agreement will result in a benefit to the public which outweighs anti-competitive behaviour. Copyright © 2000 McGraw-Hill Australia

Copyright © 2000 McGraw-Hill Australia Notifications Notify commission that S47 (exclusive dealing) is to be infringed before authorisation which eliminates any liability that may result for contravention of section. If disallowed after consideration, action must stop immediately or penalties will be imposed. Copyright © 2000 McGraw-Hill Australia

Copyright © 2000 McGraw-Hill Australia Remedies Pecuniary penalties: - Corporations - up to $10 million - Natural persons - up to $500 000 Injunction S80 Divestiture orders S81 Damages S82 Ancillary orders S87 Copyright © 2000 McGraw-Hill Australia