TODAY’S TOPIC:
Restrictive Trade Practices
Background 86
Breaches 87
Case Studies 89
RESTRICTIVE TRADE PRACTICES
The TRADE PRACTICES ACT has two aims. The first is Consumer Protection, the second prevents businesses from engaging in practices which adversely affect competition, or mergers or acquisitions which are detrimental to competition.
The application of the Act involves looking at two economic areas in order to determine whether an arrangement is anti-competitive. They are MARKET and COMPETITION.
A MARKET is the area of close competition between businesses. It is viewed on three levels:
COMPETITION is viewed as a process which allows people and organisations to purchase goods and services of good quality at a reasonable price.
The law imposes terrible penalties on businesses which indulge in the following restrictive trade practices:
1. Contracts Affecting Competition. S45
These may include market sharing agreements which have the purpose of allocating customers or territories, production limitation agreements, or agreements which may involve codes of ethics.
2. Exclusionary Provisions (Primary Boycotts). S45
Is when 2 or more businesses agree to limit or cease dealing with another business, thus forcing this business to close.
3. Price Fixing. S45A
Occurs when 2 or more businesses agree to set prices or discounts for goods, thereby eliminating competition.
4. Secondary Boycotts. SS45D and 45E
Have been prominent in relation to actions against trade unions. It basically means that a trade union cannot take frivolous industrial action against an organisation which may result in the substantial loss of earnings of that organisation.
5. Misuse of Market Power. S46
When an organisation has a substantial degree of market power, it must not misuse that power to damage or eliminate another participator in that market, or prevent the entry of a new participator.
6. Exclusive Dealing. S47
Forcing buyers to deal with nominated organisations, rather than allowing them to shop competitively.
7. Price Discrimination. S49
Businesses must not discriminate against their customers when offering discounts rebates etc.
CASE STUDIES
1. Sally and Eric were both Managing Directors of two very large clothing companies. Recently they met for lunch to have a chat about the clothing industry. During their lunch meeting they discussed Susie, who owned a dress shop and sold only clothes made by Sally's and Eric's companies. Neither Sally nor Eric liked Susie very much, and they decided that they would not sell her any more of their clothes. So to make up for the loss of sales to Susie, they decided to put their prices up by 15% to all other customers.
Unseen by Sally and Eric, Susie was sitting at a nearby table in the same restaurant. She heard the entire conversation.
Advise Susie as to any rights she may have against Sally's and Eric's companies.
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2. Patricia, Voula and Angela each own a shop selling fishing rods in Mt. Isa. Their major supplier is Baited Ltd., a large multi-national manufacturer of fishing equipment, although they also buy some of their products from a smaller Taiwanese manufacturer called Slippery Eel Pty. Ltd.
Lately they have heard a rumour that Rex Hunt, the famous fisherman is planning to establish a large fishing equipment shop in Mt. Isa. Fearing that this well cause huge losses in sales, Patricia, Voula and Angela decided to have a meeting to discuss ways of dealing with the competition. They came up with a plan which involves informing Slippery Eel that if they want to continue supplying the three shops, they are not allowed to supply Rex Hunt. They have also agreed to increasing their prices by 10% for the next 3 months or until Rex Hunt opens his shop, this will ensure that at least they will enjoy good profits for a while.
Shortly afterwards, Rex Hunt opened the doors to his new shop Huntin', Fishin', Shootin' Pty. Ltd. He quickly contacted the Managing Director of Baited Ltd., Gurwinder, who happens to be a very good friend. Gurwinder promises Rex that her company will be able to supply him with products at a much lower cost than they do to Patricia, Voula and Angela.
Discuss these issues in relation to the Restrictive Trade Practice provisions of the Trade Practices Act.