Anti competitive practices in Australia

Competition is a natural part of operating a business. In Australia and across the globe, there are certain rules and regulations designed to promote open and effective competition. Understanding these rules is crucial to operating a business.

In Australia, anticompetitive behaviour refers to behaviours that have the effect of limiting or preventing competition, being predominantly regulated under the Competition and Consumer Act 2010 (‘the CCA’). The CCA acts to prevent businesses from acting anticompetitively in a way that has the purpose, effect, or likely effect of substantially lessening competition within a market.

A market is considered an area of close competition between firms in which there exists the potential for substitutability between products and supply sources in response to price incentives (Re Queensland Cooperative Milling Association Limited and Defiance Holdings Limited (1976) 8 ALR 481).

‘Substantially lessening competition’ refers to a circumstance where businesses engage in conduct which has the effect of substantially reducing or restricting competition within the market, with the meaning of ‘substantially’ to be determined relative to the size of the particular market.

Whether a business is taken to have substantially lessened competition will be based on several factors, including:

• The size and concentration of firms in the market
• Barriers to entry for new competitors
• The availability of substitute products or services
• The degree of market power held by the business involved

The following are several examples of anticompetitive, illegal behaviour under Australian law.

 

Cartel activity

It is illegal for businesses to collude to create a ‘cartel’ within a market, as opposed to competing with one another.

Cartel activity may involve:

• Fixing prices
• Rigging bids
• Sharing markets; or
• Controlling output.

 

Price maintenance

Price maintenance is generally seen where a supplier provides a retailer with a minimum resale price, this being illegal.

While suppliers may recommend retail prices, prices should ultimately be left to the retailer’s discretion. Suppliers are not able to withhold their goods if a retailer decides to sell below their recommended price.

As such, suppliers must refrain from the following:

• Providing retailers with discounted prices for selling at a price higher than the minimum
• Prescribing minimum resale prices as part of formal agreements or policies
• Discriminating against retailers who sell for below the set price, such as through removing discounts or refusing to continue to supply goods
• Preventing retailers from advertising, displaying, or selling the supplier’s goods below a particular price.

 

Exclusive dealing

Exclusive dealing generally occurs where one party imposes restrictions on the choices or behaviours of another party, such as the purchase of goods conditional on conducting trade with a third party.

While exclusive dealing is often a legitimate aspect of business, it can become problematic where it has the effect of substantially lessening competition in the market.

 

Collective bargaining and boycotts

Collective bargaining occurs where competitors jointly negotiate with a supplier or customer over terms, conditions, and prices, collecting agreeing to refrain from acquiring or supplying goods or services.

A collective boycott refers to when competitors jointly refrain from conducting trade with another negotiating party and make the resumption of trade conditional on the party agreeing to their terms and conditions.

 

Predatory pricing

While businesses are generally able to make their own decisions relating to pricing, predatory pricing may occur where a business with substantial market power consistently offers lower prices than competitors as a means of substantially lessening competition within the market, seeking to:

• Induce competitors to leave the market; and
• Dissuade or prevent potential competitors from entering the market.

 

Key Takeaways

Anticompetitive behaviour is bad for consumers, businesses, and the broader economy, resulting in inflated prices and diminishing competition. It is important to understand what anticompetitive behaviour constitutes, not only to recognise it in others, but to ensure you are not engaging in it yourself.

This article was prepared with the assistance of Clea Philips.