LAWS1100 Business Law

Teaching Week 10

Competition & Consumer Law (2)

 Competition Law

It is widely believed that competition in the

marketplace is good for consumers and the economy.

Question: what do you think

would be the result of having
only 1 single supplier of a product
in the market (which is effectively
the same as a group of suppliers
working together)?
 Competition Law
• Competition law seeks to protect and enhance
competition by regulating/prohibiting certain actions
by businesses, including arrangements between
competitors and other agreements that artificially
maintain or inflate prices.
• Competition assists:
- Economic growth;
- Product quality;
- Lower pricing;
- Job creation and stability;
- Technological innovation.
 Competition Law
• Australia’s competition laws are primarily
contained in Part IV of the Competition and
Consumer Act 2010 (Cth) (CCA).

• The objective of Part IV is to prohibit certain

trade practices that have the effect of
substantially lessening competition in the
marketplace in order to promote competition
in Australian industry.
 Competition Law
KEY: Anti-competitive behaviour provisions.

• Broadly speaking, Part IV of the CCA prohibits

anticompetitive trade practices such as anti-
competitive agreements and exclusionary provisions
including primary or secondary boycotts: s45; misuse
of market power: s46; exclusive dealing/third line
forcing: s47; resale price maintenance: ss48, 96–100;
mergers that would have the effect or likely effect of
substantially lessening competition in a substantial
market: ss50, 50A.
 Competition Law
• In 2017 significant reforms to the Competition and
Consumer Act 2010 were introduced with the
passage of two Acts:
1. Competition and Consumer Amendment (Compe
tition Policy Reform) Act
2017
2. Competition
and Consumer Amendment (Misuse of Market Po
wer) Act 2017
• Collectively, these Acts introduced many of the
reforms recommended in the Harper Report (2015),
with the changes commencing on 6 November 2017.
 Key concepts
Important terms used throughout the legislation:

• Market: the area of close competition between firms or, putting it

a little differently, the field of rivalry between them.

• Substantially lessening competition: ‘Substantial’ has been

variously defined as large, weighty, big, real, of substance. In
order to determine whether conduct by a business has the effect
of substantially lessening competition:
– Determine what the relevant market is;
– Determine whether the conduct lessened competition in that
market, or would be likely to do so;
– If so, was the lessening substantial?
– If not, was the purpose of the conduct to substantially lessen
competition in the market?
 ACCC & Policy
• Competition in Australia is regulated by the ACCC
(Australian Competition and Consumer Commission) under
Part IV of the CCA.

• The CCA is enforced by the ACCC.

• Breaches of the CCA can be prosecuted by the ACCC.

Authorisation and Exceptions
However, the ACCC can authorise:

• Agreements that will lessen competition;

• Price fixing;
• Boycotts;
• Exclusive dealing;
• Resale price maintenance; and
• Prohibited mergers

IF it is of the view that the benefits to the public outweigh

the detriment to the public caused by the conduct.
However, ACCC cannot authorise a misuse of market power.

NOTE: The party needs to apply to the ACCC to get

authorisation.
 Cartel Conduct
• In Australia, a business cannot make a contract or
arrangement, or arrive at an understanding that lessens
competition by fixing prices, controlling or restricting
outputs, rigging bids or allocating customers or supplies
by using a cartel provision. See: CCA ss45AA.

• The ACCC has explained that a key rationale for this is

that when businesses engage in cartel conduct, they are
inflating prices, hurting consumers and businesses,
reducing choices and affecting the economy.
 Cartel Conduct
• ‘Cartel provision’ is defined in s45AD – and refers to
provisions in a contract, arrangement or understanding
between two or more businesses (that are or should be
in competition with each-other), which:
1. Fix prices;
2. Controls the output of goods to inflate prices;
3. Rigs bids or tenders;
4. Allocate customers, suppliers or territories.
See: TPC v TNT (1995); ACCC v Visy (2007).

Note: cartel conduct is also a criminal offence.

 Price Fixing
A business cannot make a deal with its competitors that they will all
charge the same price for particular products, or that they will all raise,
lower or maintain their prices. See: CCA s45AD; ACCC v Alice (1997).

• The contract, arrangement or understanding

contains a provision that has the purpose or likely
effect of fixing, controlling or maintaining prices –
agreed formula, exchanging data, restricting
production, setting same rebates/discounts etc.
Eg.) Petrol price fixing.

• Note: Just because two parties act in parallel

does not necessarily mean that they are in
collusion; a common example of parallel conduct
is price leadership.
See: TPC v Email (1980).
 Misuse of Market Power
• If a business has a substantial degree of power (eg. lots of
money) in a market, it cannot take advantage of that power
to eliminate or substantially damage a competitor, or
prevent their entry into that or any other market:
See: CCA s46; ACCC v Ticketek Pty Ltd [2011].

• A recent amendment explains that the object of s46 was to:

‘… target anti-competitive behaviour by firms with

substantial market power, while allowing legitimate pro-
competitive behaviour even if this results in harm to
inefficient competitors.”
 Misuse of Market Power
• An example of misuse of market power is predatory
pricing: charging an unrealistically low price for a product
to force a competitor out of the market. In other words, a
company will decide to take a loss in order to “wipe out” a
competitor. Then, usually after that competition is gone,
the original company will again raise the prices.

See: C&M Bricks and Boral Besser Masonry

 Resale Price Maintenance
This is an agreement between the supplier and the reseller.
• If a supplier or manufacturer tells a retailer how to sell their
product – this is in breach of s48 (CCA).

• A business will engage in resale price maintenance if it:

1. Imposes a min price upon resellers of its product; or
2. Sets a price that retailers are likely to understand is a
minimum price; or
3. Agrees with retailers that they will not advertise its
product below a specified price; or
4. Induces a retailer not to discount its product; or
5. Threatens to refuse supply to a retailer to force them to
comply with any of the above.

See: TPC v Sony (1990) and ACCC V Chaste (2005);

 Boycotts
• A boycott is an action by an individual or group that prevents or is
intended to prevent another individual or group from buying or
selling products in a market (see: ss45D, 45DA, 45DB, 45DD).

• PRIMARY BOYCOTT: a business is not permitted to agree

with its competitors that they will collectively refuse to deal with a
particular competitor, supplier or customer: s45 – nor come to a
contract or arrangement, or arrive at an understanding that
contains an exclusionary provision.
See: TPC v JW Bryant (1978)
 Secondary Boycotts
• Harder to prove than a primary boycott (see: ss45D, 45DB).

• A secondary boycott occurs if two or more businesses put

pressure on another business with whom they have no dispute,
to discourage them from dealing with the target of the boycott.
Exclusive Dealing
• CCA s47 prohibits two types of
exclusive dealing: full-line forcing
and third-line forcing.

A business will engage in full-line

forcing when it refuses to supply its
product unless the buyer agrees:
1. Not to buy products from a
competitor; or
2. Not to resupply products acquired
from a competitor; or
3. Not to resupply its product to a
particular place.
See: TPC V Massey (1983)
Exclusive Dealing

Third-line forcing occurs when a business

makes the supply of its product to a
customer conditional upon the customer
also purchasing the product of another
business (see: s47(6).

See: Travel insurance and Cannon

Investments.

See: ACCC v Black & White Cabs [2010]

Exclusive Dealing
Elements for third-line forcing:

1. There is one product that the purchaser

wants, but another product is forced on
them;
2. The business forces the product of a third
party onto the purchaser;
3. The purchaser will not gain the product they
actually wanted without also being required
to obtain the product of the third party;
4. The alleged third line forcing has the effect
of substantially lessening competition in the
relevant market.
 Mergers and Acquisitions
• Merger (combine): Two or more organisations combine to
form a single organisation.
• Acquisition (buy): One organisation acquires ownership of, or
purchases assets of another.
• CCA s50 generally prohibits mergers/acquisitions that would
have the effect or likely effect of substantially lessening
competition in a substantial market for goods or services.
• CCA s50A deals with certain acquisitions occurring outside
Australia that would substantially lessen competition in a
market within Australia.
• Note: smart businesses go first to the ACCC to apply for one
of the above and in doing so try to prove that overall the
benefits to the public will outweigh the negatives and that it
will not substantially lessen competition.
Agreements that lessen Competition
• GENERAL PROVISION: A business cannot
make a deal with one or more of its
competitors that is intended or likely to
reduce competition in the market.
See: CCA ss45(2); ACCC v Visy.

• As is the case with price fixing, in

establishing a breach of these provisions
it does not need to be shown that the
competitors have finalised a formal
agreement. It is sufficient to show that
they have reached an ‘arrangement or
understanding’.
 Penalties and Remedies
A non exhaustive list of penalties and remedies include:

• Injunctions: CCA s80;

• Damages: CCA s82;
• Compensation orders to a victim: s79B.
• Probation orders, community service orders and corrective
advertising orders: s86C;
• Adverse publicity orders: s86D;
• Other orders made by court application by an aggrieved party,
including specific performance, rescission of a contract and
variation: s87;
• Enforcement of a written undertaking given to the ACCC and/or a
declaration: s87B
 Penalties and Remedies
If a breach of Part IV is established, the Federal Court can
grant a number of possible remedies, including:
• CCA s76 – If the business is a corporation the maximum
fine will usually be the greatest of:
– $10 million;
– If the Court can determine the value of the benefit that
the business has obtained directly or indirectly as a
result of the breach: 3 times the value of that benefit;
– If the Court cannot determine the value of that benefit:
10% of its annual turnover.
• If the business is not a corporation the maximum fine is
$500,000.
Coming up next week ...

Agency and
Business Structures