1

Chapter 25

Restrictive trade practices

Copyright © Nelson Australia Pty Ltd 2003

2

Outline

A. Horizontal arrangementsB. Vertical arrangementsC. Abuse of market power

3

Restrictive trade practices

• The restrictive trade practices prohibited by Part IV of the TPA can be categorised as follows:• Horizontal arrangements – Arrangements between

firms at the same level of the business chain• Vertical arrangements – Arrangements between

firms at different levels of the business chain• Aggregation and abuse of market power – Conduct of

firms affecting the structure and competitiveness of markets through mergers, and unilateral conduct by firms possessing substantial market power which adversely affects the level of competition

4

Section A

Horizontal arrangements

5

Collusion with competitors

• Section 45(2) prohibits the making or the giving effect to of a contract, arrangement or understanding containing:• an exclusionary provision• a provision which has the purpose, or would

have or be likely to have the effect, of substantially lessening competition.

• Section 45A deems collusive arrangements in relation to prices to substantially lessen competition.

6

Arrangement or understanding

For there to be an arrangement or an understanding there must be a meeting of the minds of those said to be parties to

the arrangement or understanding … There must be a consensus as to what is to be done and not just a mere hope as to what might be done or happen. Independently held beliefs

are not enough.

Lockhart J, TPC v Email (1980)

7

Arrangement or understanding

• Apart from evidence by ‘whistleblowers’, direct and unequivocal evidence of an arrangement or understanding will be rare.

8

Arrangement or understanding

• An arrangement or understanding may be inferred from indirect or circumstantial evidence, such as evidence of:• parallel conduct• joint action• collusion• similar pricing structures• opportunities for the parties to reach an

understanding.• CASE: TPC v David Jones (Australia) Pty Ltd (1986)

9

Price fixing

• Price fixing is the most notorious horizontal practice.

• CASE: TPC v TNT Australia Pty Ltd (1995)• CASE: ACCC v Pioneer Concrete Pty Ltd (1996)• CASE: Radio 2UE Sydney Pty Ltd v Stereo FM

Pty Ltd (1983)• CASE: TPC v Service Station Association Ltd

(1993)

10

Primary boycotts

• Section 4D defines ‘exclusionary provision’ as any provision in a contract, arrangement or understanding between competitors that has the purpose of:• restricting the supply of goods or services

by all or any of those competitors to particular persons or classes of persons

• restricting the acquisition of goods or services by all or any of those competitors from particular persons or classes of persons.

11

Primary boycotts

• CASE: Hughes v Western Australian Cricket Association (Inc) (1980)

• CASE: News Ltd v Australian Rugby League Ltd (1996)• There is an exemption from the Act if the arrangement

relates to:• the remuneration, conditions of employment, hours

of work, working conditions, or termination of employment (s. 51(2)(a))

• a boycott by consumers directed at the suppliers of goods or services (s. 51(2A)).

12

Secondary boycotts

• Sections 45D–45DA prohibit secondary boycotts – action by one person in concert with a second person that hinders or prevents a third person from:• supplying goods or services to a business• acquiring goods or services from a business• engaging in trade or commerce involving

the movement of goods between Australia and places outside Australia.

• CASE: Leon Laidley Pty Ltd v The Transport Workers’ Union of Australia (1980)

13

Section B

Vertical arrangements

14

Vertical arrangements

• Vertical arrangements are arrangements between firms at different levels of the business chain which have the effect of substantially lessening competition.

• Examples include:• exclusive dealing arrangements• resale price maintenance (RPM)

arrangements.

15

Exclusive dealing

• The imposing of restrictions (other than price restrictions) by a firm at one stage in the production/distribution process on the conduct of firms at another stage

16

Exclusive dealing

• Under TPA s. 47, the following practices constitute exclusive dealing:• supplying goods or services on the condition

that the acquirer will not deal with a competitor of the supplier (s. 47(2)(d))

• supplying goods or services on the condition that the acquirer will not deal with particular customers or in particular locations (s. 47(2)(f))

17

Exclusive dealing

• supplying goods or services on the condition that the acquirer will acquire particular goods or services from a third party (s. 47(6))

• acquiring goods or services on the condition that the supplier will not deal with particular customers or in particular locations (s. 47(4))

• CASE: Application of Streets Ice Cream Pty Ltd (1975)

18

Section 47(2)(d)

• Prohibits supplying goods or services on the condition that the acquirer will not deal with a competitor of the supplier

19

Section 47(2)(d)

• Examples of prohibited arrangements include:• Solus agreements – A supplier imposing as a

condition of its supply to a retailer that the retailer deal exclusively with it

• Tying and forcing arrangements – Arrangements where the sale of two or more products are tied; the seller will only sell unrelated products as a bundled package or offers one product only on the condition that the buyer also purchases one or more other products

20

Section 47(6)

• Supplying goods or services on the condition that the acquirer will acquire particular goods or services from a third party (‘third line forcing’)

• CASE: TPC v Legion Cabs (Trading) Cooperative Society Ltd (1978)

• CASE: Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986)

21

Resale price maintenance

• TPA s. 48 prohibits RPM, the practice of a supplier specifying the price below which goods or services sold or supplied cannot be resold or resupplied.

• Sections 96–100 define the practices constituting RPM.

• RPM provisions do not prevent suppliers from recommending resale prices (s. 97).

• Section 98 deems a supplier to have engaged in RPM through withholding supplies in certain circumstances.

22

Section C

Aggregation and abuse of market power

23

Misuse of market power

Trade Practices Act 1974 (Cth) s. 46

A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:a. eliminating or substantially damaging a competitor of the

corporation or of a body corporate that is related to the corporation in that or any other market;

b. preventing the entry of a person into that or any other market; orc. deterring or preventing a person from engaging in competitive

conduct in that or any other market

24

Misuse of market power

• There are two requirements to s. 46:• The threshold requirement – that the firm

possesses a substantial degree of market power

• The predation requirement – that the firm took advantage of that power for the anti-competitive purposes specified

25

Misuse of market power

• The following will be taken into account in determining whether the conduct is a misuse of market power:• Whether the conduct adversely effects the

competitive process in the market• Whether the conduct adversely affects consumers or

users of goods or services in terms of price, quality, availability, choice or convenience

• Whether the conduct raises the costs of entry to a market or prevents or hinders potential competitors from entering the market

• Whether the conduct can be justified as efficiency or the desire to engage in genuine competitive rivalry

26

Misuse of market power

• CASE: Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991)

• CASE: ACCC v Boral Limited (2001)• CASE: Mark Lyons Pty Ltd v Bursill Sportsgear

Pty Ltd (1987)• CASE: TPC v Carlton & United Breweries Ltd

(1990)

27

Mergers and acquisitions

Trade Practices Act 1974 (Cth) s. 50

1) A corporation must not directly or indirectly:a. acquire shares in the capital of a body corporate; orb. acquire any assets of a person,

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

28

Mergers and acquisitions

• Case studies:• tobacco• Coca-Cola / Schweppes