LAWS1100 Nickolas James Business law 4_e_----_(chapter_12_dealing_with_competitors)

LEARNING OBJECTIVES
12.1 What is so important about competition?
12.2 How is competition regulated in Australia?
12.3 What is ‘anti-competitive’ conduct?
12.4 When is anti-competitive conduct permitted?
CHAPTER 12
Dealing with competitors
James, Nickolas. <i>BUSINESS LAW 4E</i>, Wiley, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/uql/detail.action?docID=4748089.
Created from uql on 2019-06-05 07:01:38.
Copyright©2014.Wiley.Allrightsreserved.

CHAPTER 12 Dealing with competitors 437
JOHNNY AND ASH
[Ash and Johnny are still dining at the restaurant, and are now sharing a dessert. Johnny is less
enthusiastic about Maria’s plans for the Lame Duck than he was earlier, after Ash’s explanation from the
previous chapter.]
Ash — So, does Maria have another other ideas about increasing profits at The Lame Duck?
Johnny — Well, actually she does. But now I’m thinking that you might not like it.
Ash — Go on . . .
Johnny — Well, you know how so many new restaurants have opened on Kerouac Avenue lately?
Competition between the restaurants has gotten so fierce it’s been threatening to put many of us out
of business.
Ash — Yes. And?
Johnny — And last night Maria and I met with the owners of eight other restaurants on the avenue
at a secret location. We discussed and agreed on some minimum prices, and worked out a way to
synchronise our ‘half-price’ nights so we don’t steal each other’s custom. As Maria keeps saying, just
because we’re competitors it doesn’t mean we can’t be friends.
Ash — So why a ‘secret location’?
Johnny — I asked Maria that. She just laughed and said something like: ‘We wouldn’t want the wrong
people to hear about our arrangement, would we?’
Ash — What did you say?
Johnny — Nothing. I assumed she knew what she was doing. . . . Ash! Stop banging your head on the
table! It’s embarrassing!
CHAPTER PROBLEM
As you make your way through this chapter, consider whether Maria’s proposal to cooperate with the
other restaurant owners is strictly legal.
Introduction
In the previous chapter we examined the wide range of legal rules with which a business must comply
when dealing with consumers. Similarly, there are important rules that apply when a business deals with
its competitors. If separate businesses, which are of course usually in competition with each other and
have little to do with each other, were free to negotiate whatever arrangements they liked, conspiracies
would abound and consumers would be severely disadvantaged.
In this chapter we consider the types of conduct that are permitted or prohibited when it comes to
dealing with competitors.
12.1 Protecting competition
LEARNING OBJECTIVE 12.1 What is so important about competition?
In previous chapters we emphasised the importance of ‘freedom of contract’. This is the notion that
people should generally be free to negotiate contracts on whatever terms they like, subject to certain
minimal legal rights and protections. But if freedom of contract is so important, shouldn’t competitors
within a market be free to meet and make whatever agreements they like? Why can’t competitors work
together to reduce costs and maximise profits? The answer is that freedom of contract has never meant
unrestrained freedom. Contracting parties have always been restrained by the obligation, for example, to
make legal contracts. And contracting competitors are constrained by a set of rules that seek to protect
and enhance competition within the market.

438 PART 2 Legal consequences
It is widely believed that competition within a market is good for consumers and good for the economy.
If there is a single supplier of a product in a market — in other words, if there is a monopoly — that
supplier has little incentive to charge a fair price or maintain the quality of their product. The same
is likely to happen if a group of suppliers work together to operate as, effectively, a single supplier.
However, where each supplier is competing for consumers with other suppliers, they are more likely to
operate efficiently, overall prices are likely to be lower, and overall product quality is likely to be higher.
Healthy competition assists economic growth and job creation, and encourages operational and techno-
logical innovation.
Competition law seeks to protect and enhance competition by regulating and prohibiting certain actions
by businesses, including certain arrangements between competitors and other agreements that artificially
maintain or inflate prices. Paradoxically, it seems that government intervention is often necessary to pre-
serve the operation of a free market.
ACTIVITY 12.1 — REFLECT
Why is government regulation of competition necessary? What would happen to competition in an
unregulated market?
REVISION QUESTIONS
Before proceeding, ensure that you can answer the following questions.
12.1 What is the relationship between freedom of contract and competition regulation?
12.2 Why is competition within a market desirable?
12.2 Dealing with competitors
LEARNING OBJECTIVE 12.2 How is competition regulated in Australia?
Australian law protects and preserves competition by prohibiting certain forms of anti-competitive
conduct.
Competition regulation
Competition in Australia is regulated primarily by the Competition and Consumer Act 2010 (Cth). In
this section we present an overview of the competition regulation provisions in this Act, as well as some
other important pieces of legislation.
Trade Practices Act 1974 (Cth) and Competition Policy Reform
Act 1995 (Cth)
Competition in Australia was initially regulated by the Trade Practices Act 1974 (Cth) (the TPA). For
the same constitutional reasons explained in the previous chapter in relation to consumer protection, the
competition regulation provisions of the TPA were initially limited to the regulation of corporations and
of those individuals engaged in trade or commerce:
•• between Australia and another country or between the States,
•• within a Territory or between a State and a Territory or between the Territories,
•• involving the supply of goods or services to the Federal Government, or
•• involving the use of postal, telegraphic or telephonic services or which takes place in a radio or
television broadcast.

In 1995 the Federal Parliament passed the Competition Policy Reform Act 1995 (Cth). The Act intro-
duced three important changes to competition regulation in Australia.
1. The application of the competition regulation provisions of the TPA was extended to all Australian
businesses and professions, whether incorporated or unincorporated.
2. The Trade Practices Commission (the body primarily responsible for administration of the TPA)
and the Prices Surveillance Authority merged to form the Australian Competition and Consumer
Commission (the ACCC). At the same time, the Trade Practices Tribunal became the Australian
Competition Tribunal, and a new advisory body, the National Competition Council, was established.
ACTIVITY 12.2 — RESEARCH
Visit the following websites and, in relation to each, outline the role of the organisation and its relevance
to competition regulation in Australia.
(a) Australian Competition and Consumer Commission: www.accc.gov.au
(b) Australian Competition Tribunal: www.competitiontribunal.gov.au
(c) National Competition Council: www.ncc.gov.au
3. Part IIIA of the TPA established an ‘access regime’ to facilitate third party access to ‘essential facil-
ities’ such as gas and water pipelines, electricity transmission wires, railway tracks, airport systems,
and telecommunication networks.
Prices surveillance
The Prices Surveillance Authority was established in 1983 to monitor prices in areas where effective
competition is not sufficient to achieve efficient prices and protect consumers, and where prices are of
strategic importance to the general price level. The Authority was empowered to endorse price increases,
to suggest lower prices, and to recommend to the Minister that a public inquiry be held. Following the
enactment of the Competition Policy Reform Act 1995 (Cth) the Prices Surveillance Authority’s func-
tions were taken over by the ACCC.
Competition and Consumer Act 2010 (Cth)
In 2010 the TPA was renamed the Competition and Consumer Act 2010 (Cth) (the CCA) as part of the
reforms that also saw the introduction of the Australian Consumer Law as described in the previous
chapter. One of the fundamental objectives of the CCA is ‘enhancing the welfare of Australians through
the promotion of competition’: CCA s 2.
Part IV of the CCA promotes competition by prohibiting ‘cartel conduct’ as well as certain trade prac-
tices that have the effect of substantially lessening competition in the market.
Some of these forms of conduct are so obviously anti-competitive that they are prohibited outright.
These are known as per se offences, and include:
•• cartel conduct,
•• misuse of market power,
•• resale price maintenance, and
•• primary boycotts.
The other forms of conduct prohibited by Part IV are conditional offences: they are only prohibited if
they have the effect of substantially lessening competition in the relevant market. These include:
•• secondary boycotts,
•• exclusive dealing,
•• certain mergers and acquisitions, and
•• agreements that lessen competition.
Cartel conduct and the other prohibited practices are considered in more detail later in the chapter.

Each of the prohibited forms of conduct (other than misuse of market power) can be ‘authorised’ by
the ACCC. The authorisation process is considered in detail towards the end of this chapter.
What is the relationship between consumer protection and competition regulation?
Key concepts
Before looking closely at the specific forms of conduct prohibited by Part IV of the CCA, it is necessary
to explain the meanings of three important terms used throughout the legislation:
•• ‘market’,
•• ‘competition’, and
•• ‘substantially lessening competition’.
‘Market’
Conduct by a business is anti-competitive if it has the effect of substantially lessening competition in a
market. The nature and extent of the relevant market is therefore the starting point in the evaluation of
the anti-competitive impact of any conduct.
The difficulty in establishing the nature and extent of a particular market has been explained as follows:
The economy is not divided into an identifiable number of discrete markets into one or other of which
all trading activities can be neatly fitted. One overall market may overlap other markets and contain more
narrowly defined markets which may, in their turn, overlap the one with one or more others. The outer
limits (including geographic confines) of a particular market are likely to be blurred; their definition will
commonly involve assessment of the relative weight to be given to competing considerations in relation
to questions such as the extent of product substitutionability and the significance of competition between
traders at different stages of distribution.1
A person claiming that conduct by a business is anti-competitive will want the market to be narrowly
defined, since the narrower the market the more likely it is that conduct will have the effect of substan-
tially lessening competition. A person claiming that conduct by a business is not anti-competitive will
want the market to be defined widely, since the wider the market the more likely it is that conduct will
not have a substantial impact on competition.
The CCA contains in s 4E an inclusive rather than a comprehensive definition of ‘market’:
For the purposes of this Act, unless the contrary intention appears, market means a market in Australia
and, when used in relation to any goods or services, includes a market for those goods or services and
other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned
goods or services.
The reference to including products that are ‘substitutable for, or otherwise competitive with’ the
product in question ensures that in ascertaining the extent of a market, the market is not limited to the
sale of products of a particular brand or type. For example, in ascertaining the extent of the market for
electronic tablets such as the iPad, one would include the market for smart phones and certain types of
laptop computer.
The definition of market usually relied upon by the courts is as follows:
A market is the area of close competition between firms or, putting it a little differently, the field of
rivalry between them.2
1 Deane J in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 196; [1989] HCA 6.
2 Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169, 190.

A market is usually recognised as having four dimensions (see figure 12.1).
Product
Time
Geography
Function
Market
FIGURE 12.1 Four dimensions of a market
1. The product dimension refers to the types of products in the particular market. It is the range of prod-
ucts, including substitutes for them, which will satisfy customer requirements. An important indicator
as to whether products are in the same market is customer response to price changes.
2. The geographic dimension refers to the geographic area the market covers.
3. The functional dimension refers to the particular level at which the organisation in question operates,
for example, manufacturing, wholesale, or retail.
4. The temporal dimension refers to the period of time in relation to which the determination of the
market is made. It is the period of time over which substitution possibilities are considered.
TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299
Australian Meat Holdings Pty Ltd (AMH) purchased shares in Borthwick’s abattoirs in North Queensland.
The Trade Practices Commission (TPC) opposed the purchase, arguing that it amounted to an unau-
thorised merger in contravention of the TPA. The court had to determine the nature and extent of the
relevant market, and decided that the market was the market for the slaughtering (the functional dimen-
sion) of cattle (the product dimension) that had to be fattened before slaughter (the temporal dimension)
in northern Queensland (the geographic dimension).
‘Competition’
In the legislation competition is not precisely defined. According to s 4 of the CCA:
Competition includes competition from imported goods or from services rendered by persons not resi-
dent or not carrying on business in Australia.
The Trade Practices Tribunal has explained competition as follows:
Competition expresses itself as rivalrous market behaviour . . . In our view effective competition requires
both that prices should be flexible, reflecting the forces of demand and supply, and that there should be
independent rivalry in all dimensions of the price-product-service packages offered to consumers and
customers . . .
The five elements of market structure which we would stress as needing to be scanned in any case are:
1. the number and size distribution of independent sellers, especially the degree of market
concentration;
2. the height of barriers to entry, that is, the ease with which new firms may enter and secure a viable
market;

3. the extent to which the products of the industry are characterised by extreme product differen-
tiation and sales promotion;
4. the character of ‘vertical relationships with customers’ and with suppliers and the extent of vertical
integration; and
5. the nature of any formal, stable and fundamental arrangements between firms which restrict their
ability to function as independent entities.
Of all these five elements of market structure, no doubt the most important is the second element, the
condition of entry. For it is the ease with which firms may enter which establishes the possibilities of
market concentration over time; and it is the threat of the entry of a new firm or a new plant into a market
which operates as the ultimate regulator of competitive conduct.3
LAW IN CONTEXT: LAW IN THE MEDIA
Microsoft and monopolies
In the late 1990s Microsoft began to bundle the internet Explorer web browser with its Windows oper-
ating system so that everybody who purchased a personal computer with Windows — by far the
majority of PC purchasers — automatically acquired internet Explorer. Microsoft thereby achieved a
dominant share in the web browser market.
In 2000, ‘antitrust’ (competition regulation) proceedings were brought against Microsoft in the United
States.4
The company was found to have abused its monopoly in the desktop operating systems market.
The finding that Microsoft effectively enjoys monopoly power was based on three factors: (1) Microsoft’s
share of the market for PC operating systems is extremely large and stable; (2) Microsoft’s dominant
market share is protected by a ‘high barrier to entry’; and (3) as a result of that barrier, Microsoft’s
customers lack a commercially viable alternative to Windows.
The court explained the nature of the barrier to entry: ‘The fact that there is a multitude of people
using Windows makes the product more attractive to consumers. The large installed base . . . impels ISVs
(independent software vendors) to write applications first and foremost to Windows, thereby ensuring
a large body of applications from which consumers can choose. The large body of applications thus
reinforces demand for Windows, augmenting Microsoft’s dominant position and thereby perpetuating
ISV incentives to write applications principally for Windows . . . The small or non-existent market share
of an aspiring competitor makes it prohibitively expensive for the aspirant to develop its PC operating
system into an acceptable substitute for Windows.’5
A rule of thumb for determining whether there is competition in the relevant market is to ask: ‘If the
business raised its price — without altering anything else, such as quality or customer service — would
it sell less?’ If the answer is yes, then there is competition.
‘Substantially lessening competition’
Many of the types of conduct referred to in Part IV of the CCA are only prohibited if they have the effect
of substantially lessening competition in a market. ‘Substantial’ has been variously defined as large,
weighty, big, real, of substance, or not insubstantial. The precise meaning of the term depends on the
context. In one case the judge said that to determine whether competition is substantially lessened ‘there
[must] be a purpose, effect or likely effect of the impugned conduct on competition which is substantial
in the sense of meaningful or relevant to the competitive process’.6
3 Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169, 189.
4 United States v Microsoft Corp, 87 F Supp 2d 30 (DDC 2000).
5 Ibid III.39–40.
6 Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41–752.

CHECKLIST
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?
If the answer to either of the last two questions is yes, then the conduct may be in contravention of the
CCA.
Note that injury to an individual trader within the particular market does not necessarily mean that
there has been a substantial lessening of competition.
REVISION QUESTIONS
12.3 How does competition law seek to protect and enhance competition?
12.4 What were the three important changes to competition law introduced by the Competition
Policy Reform Act?
12.5 What was the role of the Prices Surveillance Authority? Which body now performs that role?
12.6 What is a per se offence? Which offences are per se offences under Part IV of the CCA?
12.7 Which actions are only prohibited under CCA Part IV if they have the effect of substantially
lessening competition?
12.8 What is a ‘market’? What are the four dimensions of a market?
12.9 What is ‘competition’?
12.10 What does the term ‘substantially lessening competition’ mean? What is the test for determining
whether there has been a substantial lessening of competition?
12.3 Prohibited conduct
LEARNING OBJECTIVE 12.3 What is ‘anti-competitive’ conduct?
Part IV of the CCA promotes competition by prohibiting ‘cartel conduct’ as well as certain trade prac-
tices that have the effect of substantially lessening competition in the market.
Cartel conduct
Division 1 of Part IV of the CCA prohibits a business from engaging in ‘cartel conduct’. A cartel is a
contract, arrangement or understanding between two or more competitors that lessens competition by,
for example, fixing prices, controlling outputs, rigging bids or allocating customers. A cartel can be
formed in any industry, and may involve agreements between small, local businesses or between well-
known multinational corporations. In Australia, cartels are illegal.
Section 44ZZRJ of the CCA prohibits a business from making a contract or arrangement, or arriving
at an understanding, that contains a cartel provision. Section 44ZZRK prohibits a business from putting
a cartel provision into effect. ‘Cartel provision’ is defined in s 44ZZRD as a provision of a contract,
arrangement or understanding between two or more businesses that are or should be in competition with
each other that has the purpose or effect of:
1. fixing the prices charged by the cartel members (see below);
2. controlling outputs — that is, controlling or limiting the quantity of goods or services available to
buyers, thereby artificially inflating prices;

3. rigging bids so that members of the cartel control the outcomes of, for example, tendering processes;
or
4. allocating customers, suppliers and territories amongst the cartel members.
Cartel conduct is a per se offence. This means that the conduct is illegal, regardless of its actual
impact upon competition within the market.
TPC v TNT Australia Pty Ltd (1995) ATPR 41–375
Between 1987 and 1990, representatives from TNT Australia, Ansett Industries and Mayne Nickless met
secretly and entered into a series of agreements to allocate customers and share the Australian com-
mercial freight market. The companies agreed not to poach each other’s customers. When customers
moved from one company to another, the companies paid compensation to each other. On some
occasions, where a customer moved from one company to another, the second company deliberately
provided poor service to compel the customer to return to the first company. For example, in one case a
customer’s perishable freight was intentionally delayed to drive them back to their previous freight sup-
plier, who then charged higher prices when the customer returned to them. The TPC commenced legal
proceedings against the companies, and in 1995, fines of $11 million were imposed.
ACCC v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673
The Visy and Amcor groups of companies between them held 90 per cent of the corrugated fibreboard
packaging market in Australia. Between January 2000 and October 2004 companies in the Visy group
and certain officers of those companies entered into agreements with companies in the Amcor group
according to which:
• Amcor and Visy agreed to maintain their respective market shares and not to deal with each other’s
customers,
• increases in prices were agreed in each year,
• prices were agreed in respect of particular customers, and
• in respect of particular customers who had changed from one supplier to the other, that supplier
would provide another customer or customers in exchange.
The Federal court decided that Visy had committed 69 contraventions of the TPA by engaging
in price fixing and market sharing with Amcor. Visy was fined $36 million, and the CEO and the
General Manager, both of whom had participated in the making of the agreements with Amcor, were
fined $1.5 million and $500 000 respectively.
In addition to these civil prohibitions, cartel conduct is also a criminal offence: ss 44ZZRF, 44ZZRG.
The penalty for individuals is imprisonment for up to 10 years and/or a fine of up to $220 000 per
offence. The penalty for corporations is the greater of (1) $10 million, (2) three times the total value of
the benefits obtained that are attributable to the offence or contravention, or (3) where benefits cannot be
fully determined, 10 per cent of the annual turnover of the company.
The ACCC has extensive legal powers to investigate cartels.
Watch the ACCC-produced short film The Marker at http://www.accc.gov.au/publications/cartel-
the-marker-dvd. What are the key lessons from the film?

LAW IN CONTEXT: LAW IN PRACTICE
How to get out of a cartel
Immunity for cartel participants
The ACCC has established an immunity policy for corporations and individuals who have been involved
in a cartel but then report their involvement to the ACCC. The policy provides immunity from litigation
and penalty for those who assist with cartel investigations. The ACCC can grant civil immunity. Immunity
from criminal prosecution can only be granted by the Commonwealth Director of Public Prosecutions
(CDPP), on the recommendation of the ACCC, as outlined in the MOU, and in accordance with the pros-
ecution policy of the Commonwealth.
The immunity is strictly conditional and is subject to a number of conditions.
Conditions for immunity
• Only the first person or corporation to bring the matter to the attention of the ACCC may qualify for
immunity (those who subsequently cooperate may be offered leniency).
• The immunity applicant must not have been the clear leader of the cartel or have coerced others to
join.
• They must cooperate fully with the ACCC and continue to cooperate, or the immunity may be
withdrawn.
• They must cease their involvement in the cartel or agree to cease such conduct.
• An application for immunity will not be accepted if the ACCC already has written advice that there is
sufficient evidence to commence court proceedings.
• A person or corporation may request a ‘marker’ for a limited period of time. This will, in effect, pre-
serve first place in the queue while the applicant collects information or seeks legal advice.
Corporate immunity is offered only if the admissions are a truly corporate act, as opposed to isolated
confessions of individual representatives. The immunity may cover past and current directors, officers
and employees who admit their conduct and cooperate with the investigation. The corporation must list
all those seeking this derived immunity at the time of applying.
Individuals may also seek immunity on the same conditions. This might apply where an individual
officer wishes to report the conduct to the ACCC.
Confidentiality
Whistleblowers can report to the ACCC on a confidential basis. Investigators will, as far as possible,
keep the identity of whistleblowers confidential.
The Competition and Consumer Act has special provisions for protected cartel information. This
enhances the protection given to confidential information about a possible breach of the civil or criminal
provisions relating to cartel conduct.
Benefits of the immunity policy
The immunity policy has been extremely successful in detecting cartels and providing a
powerful deterrent to engaging in cartel activity. It provides a strong incentive for a member to be
the first to break ranks, confess, stop participating in cartel activities and help with ACCC and CDPP
investigations. The policy works by injecting distrust and suspicion into a cartel, which destabi-
lises relationships between participants. The message is simple: Don’t be beaten in the rush to the
confessional.
It is important to note that immunity does not protect a company from civil damages claimed by its
customers.
Source: Australian Competition and Consumer Commission, ACCC Immunity Policy for Cartel Conduct (2009).
Price fixing
One of the more common forms of cartel conduct is price fixing. According to CCA s 44ZZRD, a pro-
vision of a contract, arrangement or understanding is a cartel provision if it has the purpose or is likely
to have the effect of fixing, controlling or maintaining the price of goods or services, or of a discount,
allowance, rebate or credit in relation to goods or services.

This means that a business cannot form a cartel with its competitors and agree that they will all charge
the same price for particular products, or that they will all raise, lower or maintain their prices. Note that
it is not necessary to prove that price fixing actually occurred, only that the businesses intended to fix
prices. Nor is it necessary to prove that if price fixing did occur it had any actual effect upon competition
in the market: price fixing, like all cartel conduct, is prohibited per se.
ACCC v Alice Car and Truck Rentals Pty Ltd (1997) ATPR 41–582
Alice Car and Truck Rentals Pty Ltd stopped offering a car rental discount called the ‘Ayers Rock
Special’ after it had reached an understanding with its competitors that they would also stop offering
the special. The court decided that this was a price fixing agreement. The four companies involved were
fined $1.54 million in total, and the manager of the Alice Springs office of Territory Rent-a-Car was fined
$100 000, as well as costs of $50 000.
In establishing a breach of these provisions, two requirements must be satisfied.
CHECKLIST
A business will have engaged in price fixing if all of the following requirements are satisfied.
◼◼ The business has a contract, arrangement or understanding with one or more other businesses with
which it is in competition.
◼◼ The contract, arrangement or understanding contains a provision that has the purpose or likely effect
of fixing, controlling or maintaining prices.
Requirement 1: A contract, arrangement or understanding
To prove the existence of an arrangement or understanding between the businesses, it is necessary to
show that they arrived at the same conclusion — that is, that there was a ‘meeting of minds’. If only one
of the businesses intended to engage in the conduct, it will generally not meet the required threshold.
There must be a consensus between the businesses.
Just because two businesses act in parallel does not necessarily mean that they are in collusion. A
common example of parallel conduct is ‘price leadership’. This occurs when one business sets a price
and competitors subsequently set the same price. This is often raised in relation to petrol stations. Price
leadership will not contravene the CCA, as there has been no agreement between the businesses.
TPC v Email (1980) 43 FLR 383
Email and Warburton Franki were the only manufacturers of certain electricity meters in Australia, with
Email holding approximately 70 per cent of the market and generally recognised as market leader. Email
and Warburton Franki engaged in parallel pricing: they issued identical price lists, they sent their respec-
tive price lists to each other, and they submitted identical tenders for contracts. The TPC brought an
action alleging the existence of an ‘arrangement or understanding’ in breach of the prohibition on price
fixing. The defendants argued that the parallel pricing was due to market forces and that Warburton
Franki simply followed the prices of Email as market leader. The Federal Court decided that there was
no price fixing agreement.
Requirement 2: The purpose or likely effect of fixing, controlling or maintaining prices
The term ‘purpose’ has been interpreted as both subjective (what were they actually thinking?) and
objective (how would an observer interpret the situation?).
It is the purpose of the particular provision that is important, not the purpose of the entire contract
or arrangement. If the provision was included for the substantial purpose of fixing, controlling or

maintaining prices, then the fact that there may be a legitimate purpose for the entire contract or arrange-
ment will not prevent it from being a contravention of the CCA.
Competitors do not need to agree on a particular price to contravene the provision. Examples of price
fixing include:
•• using an agreed formula to set prices,
•• exchanging data relevant to setting prices,
•• restricting production with the intention of increasing the price, and
•• setting the same discounts, allowances, rebates or availability of credit.
‘Recommended retail price’ arrangements are not prohibited, as long as they are simply
recommendations.
Federal Court orders $23.3 million in penalties for petrol price fixing
In 2002 the ACCC instituted proceedings against 16 companies and individuals in the Ballarat region,
alleging the existence of a long-standing price-fixing arrangement in the petrol supply market. The
ACCC alleged the participants arranged to increase prices by telephoning each other, agreeing upon the
size and approximate time of price rises, and then contacting retail sites to implement the rises. When
a company became aware that a service station had not raised its price, further calls were made to
participants to have the site raise its prices.
The Federal Court found that a price-fixing arrangement existed, and in 2005 the court imposed
pecuniary penalties totalling $23.3 million. In addition to penalties, the Federal Court also declared the
conduct in breach of the Act and ordered injunctions against the respondents prohibiting them from
communicating to or obtaining from competitors the retail price of fuel for a period of four years and
ordered that the respondents pay the ACCC’s costs.
Source: Australian Competition and Consumer Commission, ‘Federal Court Orders $23.3 Million in Penalties for Petrol
Price Fixing’ (Media Release, MR 067/05, 17 March 2005) http://www.accc.gov.au/media-release/federal-court-orders-
233-million-inpenalties-for-petrol-price-fixing.
Other prohibitions
The other, specific types of anti-competitive conduct prohibited by CCA Part IV include:
•• misuse of market power,
•• resale price maintenance,
•• boycotts,
•• certain mergers and acquisitions, and
•• agreements that lessen competition.
Misuse of market power
This prohibition only applies to a business if it has a substantial degree of power within a market — that
is, it is one of the major suppliers of goods or services within a particular market. Such a business is not
permitted to take advantage of its market power to:
•• eliminate or substantially damage a competitor,
•• prevent the entry of a person into that or any other market, or
•• deter or prevent a person from engaging in competitive conduct in that or any other market: CCA s 46.
In determining the extent of the market power of a business, the ACCC or court will consider:
•• the ability of the business to increase its prices above the minimum cost of production without
competitors taking its customers away,

•• the degree to which its conduct in the market is controlled by its competitors or prospective competitors,
•• its market share,
•• the existence of vertical integration, and
•• any barriers to entry within the market.
CAUTION!
The CCA does not prohibit the existence of market power; it prohibits the misuse of market power.
In determining whether conduct will be a misuse of market power, the ACCC or court will consider
whether the conduct:
•• adversely affects the competitive process in a market;
•• adversely affects consumers in terms of price, quality, availability, choice or convenience;
•• raises the costs of entry to a market; or
•• can be explained in terms of efficiency or a desire to engage in genuine competitive rivalry.
An example of misuse of market power is predatory pricing. A business engages in predatory pricing
when it charges an unrealistically low price for its product to force a competitor out of the market. Price
cutting and underselling competitors is not necessarily predatory pricing, but when a business has a sub-
stantial degree of market power it may be considered to be a misuse of that market power.
Court upholds predatory pricing appeal against Boral Besser
Masonry Ltd
In 1994 C&M Bricks, a private company that manufactured concrete masonry products in Bendigo,
Victoria, began new manufacturing operations in the outskirts of Melbourne using highly efficient, ‘state
of the art’ technology, which increased production capacity and reduced costs significantly. Boral Besser
Masonry Ltd slashed prices below manufacturing costs for the purpose of driving C&M Bricks out of
the concrete masonry products market and of deterring other new entrants from entering this market.
In 2001 the Full Court of the Federal Court decided that Boral Besser Masonry Ltd’s pricing below
manufacturing costs was a misuse of market power in breach of Part IV of the TPA. The Court found that
the relevant market was the Melbourne market for concrete masonry products and that Boral Besser
Masonry Ltd had a ‘substantial degree of power’ in this market.7
In assessing the extent of market power the court will take into account the existence of vertical inte-
gration. What is ‘vertical integration’?
Other types of conduct that may amount to a misuse of market power include:
•• refusing to supply products to a competitor to exclude them from a market,8
and
•• a major retailer refusing to sell products that are on special at nearby independent stores.9
Misuse of market power is prohibited per se and cannot be authorised by ASIC.
7 Australian Competition and Consumer Commission, ‘Court Upholds Predatory Pricing Appeal Against Boral Besser Masonry
Ltd — Important Case About Misuse of Market Power’ (Media Release, MR 035/01, 28 February 2001) <http://www.accc.gov.
au/media-release/court-upholds-predatory-pricing-appeal-against-boral-besser-masonry-ltd-%E2%80%93-important>.
8 Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177.
9 ACCC v Australian Safeway Stores Pty Ltd (No 4) [2006] ATPR 42–101.

Resale price maintenance
CCA s 48 prohibits the practice of resale price maintenance. This is the practice of prohibiting retailers
from selling a product at a discount. Specifically, a business will engage in resale price maintenance if it:
•• imposes a minimum price upon resellers of its product below which the product must not be sold,
•• sets a price that retailers are likely to understand is the price below which the product should not be
sold or advertised,
•• agrees with retailers that they will not advertise the product below a specified price,
•• induces a retailer not to discount the product, or
•• threatens to refuse supply to a retailer to force them to comply with any of the above: CCA ss 96–100.
Whereas price fixing is a horizontal agreement between competitors to set prices at some level, resale
price maintenance is a vertical agreement between a supplier and a reseller. In a resale price main-
tenance arrangement the businesses will not be operating in competition with each other.
Although resale price maintenance has been illegal in Australia since 1971, the practice continues to
be one of the largest areas of litigation for the ACCC.
TPC v Sony (Australia) Pty Ltd (1990) ATPR 41–031
Two retailers decided to discount Sony electrical goods below the prices set by Sony (Australia) Pty Ltd.
Sony withheld supply of goods ordered by the two retailers. The court decided that Sony had engaged
in resale price maintenance. Sony was fined $250 000, its former Queensland manager $12 000 and its
national consumer sales manager $12 000.
ACCC v Chaste Corp Pty Ltd (in liq) [2005] FCA 1212
The Chaste Corporation Pty Ltd, a manufacturer of weight-loss tablets, entered into 70 area manage-
ment agreements Australia-wide which contained provisions preventing managers from selling the
weight-loss products at a discount. The Federal Court decided that the company had engaged in resale
price maintenance. The company was fined $600 000 and total penalties of $430 000 were ordered
against senior members of the company.
A business will engage in resale price maintenance if it openly states a price below which the reseller
must not sell. However, it may also be engaging in resale price maintenance if it:
•• states the desired selling price as a formula (e.g. ‘cost + 20%’),
•• states the desired price in a way that is likely to be understood by the reseller to be a minimum resale
price, or
•• claims that supply of the product to the reseller is not being withheld due to the pricing policy of the
reseller but rather due to ‘shipping delays’ or ‘stock issues’.
A business is more likely to engage in resale price maintenance if it sells a ‘branded’ product. The
business may be concerned to maintain an ‘exclusive’ brand image and put pressure upon resellers not
to discount the product.
ACCC v Dermalogica Pty Ltd (2005) 215 ALR 482
Between July and September 2002, Dermalogica Pty Ltd, a wholesaler of prestige skincare products,
wrote to two retailers who were discounting Demalogica products, stating: ‘It has come to our atten-
tion that your website is offering the Dermalogica product range for sale lower than the recommended
retail price. Our web guidelines and policies clearly state that in order to maintain Dermalogica’s

premium brand image and consistent pricing strategy, we strongly discourage the selling of Derma-
logica products for more or less than their suggested retail prices. I would ask you therefore to please
adjust your prices for online retailing with immediate effect.’ Staff of the company also met with the
retailers to express concern about their practice of discounting Dermalogica products, making it known
that the company would stop selling Dermalogica products to retailers that sold products at a significant
discount to the recommended retail price. The Federal Court decided that Dermalogica had engaged in
resale price maintenance and fined the company $250 000.
A business does not engage in resale price maintenance if:
•• a price attached to the goods or services is preceded by the words ‘recommended price’, or the busi-
ness states that the price is a recommended price only and there is no obligation to comply with the
recommendation: CCA s97,
•• it insists on a maximum price, or
•• it withholds supply if the reseller engages in loss leading with the product, that is, selling the product
at less than cost to attract customers or recover a loss of profits from the sale of other products.
Resale price maintenance is prohibited per se.
Boycotts
A boycott is an action by an individual or group that prevents or is intended to prevent another indi-
vidual or group from buying or selling products in a market. A business is not permitted to agree with
one or more other businesses that they will collectively refuse to deal with a particular competitor, sup-
plier or customer.
The legislation prohibits both primary boycotts and secondary boycotts.
Primary boycotts
A primary boycott is where two or more businesses directly boycott the products of the target (see
figure 12.2).
Two or more businesses
target
boycott
FIGURE 12.2 Primary boycott
According to CCA s 45(2), a business is not permitted to make a contract or arrangement, or arrive
at an understanding, that contains an exclusionary provision. This is a provision that seeks to pre-
vent, restrict or limit the supply of goods or services to, or the acquisition of goods or services from,
particular persons or classes of persons by all or any of the parties to the contract, arrangement or
understanding: CCA s 4D(1). In other words, competitors are prohibited from agreeing with each
other not to supply to or buy from the boycott target, or to supply or buy from them only in particular
circumstances.

TPC v JW Bryant Pty Ltd (1978) ATPR 40–075
A trade association threatened to expel some of its members — fruit and vegetable marketers —
because of their refusal to charge certain costs to customers as required by an association resolution.
Expulsion would have limited the marketers’ ability to acquire goods. The court decided that this was
an exclusionary provision.
Primary boycotts are prohibited per se.
Secondary boycotts
A secondary boycott is an indirect boycott. It occurs if two or more business put pressure on a third
business with whom they have no dispute to discourage them from dealing with the target of the boycott
(see figure 12.3).
According to CCA s 45D, a business must not, in concert with a second person, engage in conduct
that hinders or prevents a third person supplying or acquiring goods or services to a fourth person, and
that has the purpose and effect of causing substantial loss or damage to the business of the fourth person.
And according to CCA s 45DA, it must not, in concert with a second person, engage in conduct that
hinders or prevents a third person supplying or acquiring goods or services to a fourth person, and that
has the purpose and effect of causing a substantial lessening of competition in any market in which the
fourth person supplies or acquires goods or services.
target
boycott
Two or more businesses
another business to
pressure
FIGURE 12.3 Secondary boycott
For example, Johnny might be concerned about a new business, New Ltd, which has recently started
competing with him. Johnny and one of his other competitors, Other Ltd, inform a company which sup-
plies both of them, Supply Ltd, that if Supply Ltd deals with New Ltd, Johnny and Other Ltd will no
longer deal with Supply Ltd. This would be a secondary boycott.
It is not a prohibited secondary boycott if:
•• the target of the secondary boycott is the employer of the boycotters: CCA ss 45D(1). 45DA(1),
•• the dominant purpose of the secondary boycott is substantially related to remuneration, conditions of
employment, hours of work or working conditions: CCA ss 45DD(1) – (2), or
•• the dominant purpose of the secondary boycott is substantially related to environmental protection or
consumer protection: CCA s 45DD(3).

What might be the justification for including each of the three exceptions listed above in the legislation?
Doctors risk breaching competition laws
The Kangaroo Island Medical Clinic was the only general medical clinic on the island. Five doctors
worked at the clinic. Each of the doctors operated their own medical practice and shared office and
administration facilities. On 1 October 2009, each doctor wrote to the administrator of the Kangaroo
Island hospital giving notice of his or her intention not to accept the current remuneration for after-
hours services to the hospital from midnight 31 October 2009, and enclosing an interim contract for
negotiations should the hospital wish to continue an on call doctor arrangement. In other words, the
doctors were threatening to withdraw their services unless a new payment arrangement was agreed
to by the hospital. The ACCC commenced an investigation due to concerns that the doctors had
breached the TPA by engaging in a prohibited boycott. Although they all operated from the same
medical clinic the doctors were competitors. At the conclusion of the investigation in 2010 the ACCC
was satisfied that its concerns could be addressed by undertakings to the ACCC. Each of the five
doctors gave an undertaking to the ACCC that they would not, in the future, come to an arrangement
or understanding with one or more of their associates to withdraw services from the Kangaroo Island
hospital.
Source: Australian Competition and Consumer Commission, ‘Doctors risk breaching competition laws’ (Media Release,
MR 038/10, 5 March 2010) http://www.accc.gov.au/media-release/doctors-risk-breaching-competition-laws.
Exclusive dealing
CCA s 47 prohibits a business from engaging in exclusive dealing. This occurs when a business imposes
restrictions on another person’s freedom to choose with whom, in what amount, or where they buy prod-
ucts. If Johnny supplies his product on the condition that the purchaser does not purchase the product of
one of his competitors, or on the condition that they not sell his product to a particular type of customer,
Johnny engages in exclusive dealing.
There are two types of exclusive dealing: full line forcing and third line forcing.
Full line forcing
A business engages in full line forcing when it refuses to supply its product unless the buyer agrees:
•• not to buy products of a particular kind or description from a competitor,
•• not to resupply products of a particular kind or description acquired from a competitor, or
•• not to resupply its product to a particular place or class of place.
A full line forcing arrangement is only prohibited if it has the effect of substantially lessening compe-
tition in the relevant market.
TPC v Massey Ferguson (Australia) Ltd (1983) 67 FLR 364
Massey Ferguson (Australia) Pty Ltd (MF) offered to supply tractors to a dealer on the condition that the
dealer not stock a competitor’s products. In addition, MF twice refused to supply dealers because they
had either bought elsewhere or had not agreed not to. The court decided that the relevant market was
the wholesale supply of tractors in Australia, and that MF’s conduct had the likely effect of substantially
lessening competition in that market. MF was fined $40 000.

LAW IN CONTEXT: LAW AND TECHNOLOGY
Federal Court finds Warner Music, Universal Music had misused
their market power, engaged in exclusive dealing to prevent parallel
imports of CDs
In 1998 the ACCC conducted an investigation into the conduct of Warner Music and Universal Music
after allegations that the companies had threatened to withdraw significant trading benefits from retailers
who stocked competitively priced parallel imports of CDs, and had cut off supply to retailers who
stocked parallel imports. In September 1999 the ACCC instituted proceedings against Warner Music
and Universal Music alleging that the action taken by the companies contravened the exclusive dealing
and misuse of market power sections of the Act, by taking advantage of their market power to deter
retailers from engaging in competitive conduct.
In 2001 the Federal Court decided that Warner Music and Universal Music had engaged in the alleged
misuse of market power and exclusive dealing. The companies were found to have had a ‘substantial
degree of market power in the recorded music wholesale market for recorded music, which is an essen-
tial element for establishing a contravention of s 46’.
Source: Australian Competition and Consumer Commission, ‘Federal Court Finds Warner Music, Universal Music Had
Misused Their Market Power, Engaged in Exclusive Dealing to Prevent Parallel Imports of CDs’ (Media Release, MR
314/01, 14 December 2001) http://www.accc.gov.au/media-release/federal-court-finds-warner-music-universal-music-
had-misused-their-market-power.
The CCA does not, however, give buyers an absolute right to be supplied whatever the circumstances.
Whether or not a refusal by Johnny to deal with a particular buyer is a contravention of the Act depends
on the effect the refusal has or would have on a market. It is still legal to refuse supply for a variety of
reasons. For example, Johnny might believe the buyer to be a bad credit risk, an incompetent business
person or simply an unpleasant individual to deal with. Provided that his reasons for refusing to supply
are legitimate commercial reasons, there is no contravention of the CCA.
Third line forcing
Third line forcing is prohibited as a form of exclusive dealing: CCA s 47(6). It occurs when a business
makes the supply of its product to a customer conditional upon the customer also purchasing the product
of another business. Prior to 2007 third line forcing was prohibited outright; it is now prohibited if it
has the effect of substantially lessening competition in the relevant market.
Warning to travel industry on advertising, third line forcing
In 1996 ACCC investigations revealed that WA travel company Cannon Investments Pty Ltd, trading as
Travelshop, offered flights to London on the condition that prospective passengers also acquired travel
insurance from nominated insurance companies. Additionally, the prices at which the flights were adver-
tised did not include the additional costs associated with the travel insurance. Travelshop acknowledged
that it may have engaged in third line forcing. It gave a legally enforceable undertaking that it would:
• cease applying conditions to its travel services which may constitute third line forcing and, in future,
refrain from representing, in advertising or by any other means, that consumers are required to obtain
travel insurance from another supplier in relation to any flights or other services being offered by
Travelshop,
• withdraw its current advertising and in future ensure that full details are provided in its advertising of
all conditions applicable to any offer being made by it,
• publish corrective advertising in each newspaper and publication in which the current advertising
originally appeared, and
• institute a trade practices compliance/training program within the company.
Source:Australian Competition and Consumer Commission, ‘Warning to Travel Industry on Advertising, Third Line
Forcing’ (Media Release, MR 154/96, 14 November 1996) http://www.accc.gov.au/media-release/warning-to-travel-
industry-on-advertising-third-line-forcing.

CHECKLIST
A business will have engaged in third line forcing if all of the following requirements are satisfied.
◼◼ There is one product that the purchaser desires and another product is forced upon them.
◼◼ The business ‘forces’ the product of a third party onto the purchaser.
◼◼ The purchaser will not gain the desired product without also being required to obtain the product of
the third party.
It is not uncommon for two businesses to have a relationship where they support each other and
recommend each other’s products. What practical precautions can they take to ensure that they do not
engage in third line forcing?
Mergers and acquisitions
A merger occurs when two or more organisations combine to form a single organisation. An acquisition
occurs when one organisation acquires ownership of, or purchases the assets of, another organisation.
Mergers and acquisitions allow organisations to create economies of scale and spread risk, and are good
for the overall economy to the extent that they provide a mechanism by which poorly performing organ-
isations are replaced by better performing ones. However, in some cases, mergers and acquisitions can
have an anti-competitive effect by discouraging competitive conduct and by reducing the number of
competitors in a market.
The CCA prohibits mergers and acquisitions that have, or would be likely to have, an anti-competitive
effect. According to CCA s 50, a business is not permitted to merge with or acquire ownership of another
business or purchase the assets of another business if by doing so it will have the effect of substantially
lessening competition in a market. Section 50A extends the prohibition to mergers and acquisitions
taking place outside of Australia.
In deciding whether the merger or acquisition has the effect of substantially lessening competition, the
court will consider:
•• the actual and potential level of import competition in the market,
•• the height of barriers to entry to the market,
•• the level of concentration in the market,
•• the degree of countervailing power in the market,
•• the likelihood that the acquisition would result in the acquirer being able to significantly and sustain-
ably increase prices or profit margins,
•• the extent to which substitutes are available in the market or are likely to be available in the market,
•• the dynamic characteristics of the market, including growth, innovation and product differentiation,
•• the likelihood that the acquisition would result in the removal from the market of a vigorous and
effective competitor, and
•• the nature and extent of vertical integration in the market: CCA s 50(3).
When businesses are considering a merger it is usually appropriate to have the merger assessed in
terms of its potential impact upon competition. There is no legislative requirement that the businesses
notify the ACCC of the proposed merger, and they have the option of proceeding with a merger without
seeking any regulatory consideration. However, this may put them at risk of legal action.
Download the Formal Merger Process Guidelines from www.accc.gov.au. What is a ‘merger clearance’
and how is one obtained?

Where the ACCC has identified concerns with a proposed merger or asset sale, the businesses might
decide to offer certain undertakings to the ACCC to address the competition concerns: CCA s 87B. If the
ACCC decides to accept the undertakings and the businesses subsequently breach the undertakings the
ACCC can seek a range of possible orders from the Federal Court, including:
•• an order that the businesses comply with the undertaking,
•• an order that they give up any financial benefit they gained from the breach, and/or
•• an order that they pay compensation for any other loss or damage as a result of the breach.
Agreements that lessen competition
In addition to the above prohibitions, a business is not permitted to make a contract or arrangement,
or arrive at an understanding, that has the purpose or effect of substantially lessening competition:
CCA s 45(2). Nor is it permitted to give a covenant or require the giving of a covenant that has the pur-
pose or effect of substantially lessening competition: CCA s 45B(2). In other words, a business cannot
make a deal with one or more of its competitors that is intended to or is likely to substantially reduce
competition in the particular market or in any other market.
ACCC welcomes changes to eBay payment policies
The terms for the use of eBay set out on ebay.com.au obliged sellers to offer PayPal as a payment
option. The ACCC investigated complaints that this conduct by eBay had the effect of, or was likely to
have the effect of, substantially lessening competition in contravention of the TPA. In May 2010 eBay
announced that it would change the ebay.com.au website to remove the requirement that sellers offer
PayPal as a payment option. The ACCC responded by welcoming the action by eBay and discontinuing
its investigation.
Source: Australian Competition and Consumer Commission, ‘ACCC Welcomes Changes to eBay Payment Policies’
(Media Release, MR 099/10, 13 May 2010) http://www.accc.gov.au/media-release/accc-welcomes-changes-to-ebay-
payment-policies.
As was the case with price-fixing arrangements, in establishing a breach of these provisions it does
not need to be shown that the business has finalised a formal agreement. It is sufficient to show that it
has reached an ‘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.10
Of course, in the absence of a formal agreement, evidence of such an arrangement or understanding
may be difficult to find. Sometimes the ACCC is provided with direct evidence of an arrangement or
understanding by a ‘whistleblower’. For example, in one case evidence of price fixing was provided by
an employee who took detailed notes of the relevant company policy.11
In the absence of direct evidence of an arrangement or understanding, the existence of an arrangement
or understanding may be established by indirect or circumstantial evidence, such as evidence of parallel
conduct, similar pricing structures, or opportunities for the parties to reach an understanding.
In the absence of documentation, how might the ACCC prove the existence of an arrangement or
understanding between Johnny and his competitors?
10 TPC v Email Ltd (1980) 31 ALR 53, 56.
11 Allied Mills Industries Pty Ltd v TPC (No 1) (1981) 34 ALR 105.

REVISION QUESTIONS
12.11 What is a ‘cartel’? What is ‘cartel conduct’?
12.12 What is ‘price fixing’? Give an example.
12.13 What is the difference between price fixing and price leadership?
12.14 What is ‘misuse of market power’?
12.15 How does the court determine the extent of market power?
12.16 What is ‘predatory pricing’? Give an example.
12.17 What is ‘resale price maintenance’? Give an example.
12.18 What is the difference between resale price maintenance and price fixing?
12.19 What is a ‘boycott’?
12.20 What is an ‘exclusionary provision’? Give an example.
12.21 What is the difference between a primary boycott and a secondary boycott?
12.22 What kinds of secondary boycott will not breach the CCA?
12.23 What is ‘exclusive dealing’? Give an example.
12.24 What is the difference between full line forcing and third line forcing?
12.25 What are ‘mergers’ and ‘acquisitions’ and why do they occur?
12.26 What kinds of mergers and acquisitions are prohibited by CCA Part IV?
12.27 What kinds of agreements are prohibited by CCA s 45(2)?
12.28 What is the difference between an ‘agreement’ and an ‘arrangement or understanding’?
12.4 Consequences of breach
LEARNING OBJECTIVE 12.4 When is anti-competitive conduct permitted?
In this section we consider the consequences of a business contravening Part IV of the CCA.
Remedies
If a contravention of Part IV is established, the Federal Court can grant a number of possible remedies,
including:
•• a fine: CCA s 76,
•• an injunction: CCA s 80,
•• a divestiture order in the case of a prohibited merger: CCA s 81,
•• an action for damages: CCA s 82,
•• a corrective advertising order: CCA s 86C,
•• an adverse publicity order: CCA s 86D,
•• enforcement of a written undertaking given to the ACCC: CCA s 87B, and/or
•• a declaration: CCA s 163A.
Part IV of the CCA can be enforced by a competitor, a supplier, a franchisee, a customer or a con-
sumer. Part IV can also be enforced by the ACCC. In practice the ACCC will only take action if it is
of the view that it is necessary to do so in the public interest. (The ACCC receives tens of thousands
of complaints each year, and cannot pursue all of them.) Rather than commence legal proceedings, the
ACCC may choose to accept an undertaking (which is enforceable in the court) not to repeat the con-
duct, to make good any losses, or to perform some kind of community service.
Penalties
If the court decides that a business has:
•• contravened a provision of Part IV,
•• attempted to contravene such a provision,

•• aided, abetted, counselled or procured a person to contravene such a provision,
•• induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene
such a provision,
•• been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a
person of such a provision, or
•• conspired with others to contravene such a provision.
The court may order the business to pay a fine in respect of each contravention as the court determines
to be appropriate having regard to all relevant matters, including:
•• the nature and extent of the contravention and of any loss or damage suffered as a result of the
contravention.
•• the circumstances in which the contravention took place, and
•• whether the business has previously been found to have engaged in any similar conduct: CCA s 76.
If the business is a corporation, the maximum fine will usually be the greatest of:
•• $10 million,
•• three times the value of the benefit that the business has obtained directly or indirectly as a result of
the contravention, and
•• 10% of the annual turnover of the business, if the Court cannot determine the value of that benefit.
If the business is not a corporation, the maximum fine is $500 000.
ACCC v Telstra Corp Ltd (2010) 188 FCR 238
Telstra admitted to engaging in anti-competitive conduct in the form of multiple breaches of its obli-
gation under the Telecommunications Act 1997 (Cth) to permit access by competing telecommuni-
cations companies to its networks. It also admitted to making misleading representations about
its facilities’ capacity to accommodate the access seekers. The Federal Court imposed a fine
of $18.5 million. In calculating the fine, the court took into account a range of factors including the
following in Telstra’s favour:
• There was no proof of a deliberate decision to engage in anti-competitive conduct.
• The various failures in communication, training, and management had been addressed by Telstra.
• Telstra had cooperated, accepted responsibility for the breaches, and admitted liability in court.
• The ACCC could not prove that Telstra’s actions had caused any actual loss to the access seekers.
• The refusals to grant access were about 0.5 per cent of all the access requests received at that time.
The court also took into account the following:
• Telstra had shown no remorse for its actions.
• The purpose of the legislation was to protect consumers, and general and specific deterrence was
needed for this protection.
• Telstra had many years to get its systems in order, but took no steps to develop a culture of com-
pliance with its access obligations.
The fines payable for breach of Part IV are civil rather than criminal penalties. This means that lia-
bility is determined using the civil standard of proof (the balance of probabilities) rather than the criminal
standard of proof (beyond all reasonable doubt).
Explain why the fines for breaching Part IV of the CCA are so large.
Authorisations and notifications
If a business wishes to engage in conduct or enter into an arrangement that is likely to be considered to
be anti-competitive in contravention of Part IV of the CCA, it may nevertheless be able to do so if it has
the approval of the ACCC.

The authorisation and notification processes in the CCA allow the ACCC to permit anti-competitive
conduct on public benefit grounds.
Authorisation
The ACCC can authorise conduct that would otherwise be considered to be:
•• an agreement that lessens competition,
•• price fixing,
•• a prohibited boycott,
•• resale price maintenance, or
•• a prohibited merger: CCA s 88.
Authorisation is not available for misuse of market power.
The ACCC first publishes a draft decision and gives interested parties the opportunity to respond
before making its final decision: CCA s 90A. The business can apply to the Australian Competition Tri-
bunal for a review of the ACCC’s decision CCA Part IX.
Notification
A business can notify the ACCC of proposed exclusive dealing conduct and gain automatic immunity
from legal proceedings: CCA s 93. The ACCC can withdraw the immunity if it forms the view that the
conduct will substantially lessen competition and is not outweighed by a public benefit, and the immu-
nity ceases 30 days after the ACCC’s decision to withdraw it.
Speedway racing notifications revoked
In 2008 the ACCC accepted notifications lodged by Perth Motorplex and Avalon Raceway that they
would engage in exclusive dealing by only allowing drivers and pit crew to access racing track facilities
if they held a licence from the National Association of Speedway Racing (NASR). In August 2010, how-
ever, the ACCC decided that the balance of public benefits and public detriments had changed since it
initially allowed the notified conduct. As a result of the notifications, speedway associations that issued
licences in competition with NASR were only able to host events at Perth and Avalon if their drivers also
obtained a NASR licence. This reduced the attractiveness of competing licensing bodies and reduced
their ability to expand their membership. The ACCC decided that the restriction of access to particular
licence holders was anti-competitive and entrenched NASR’s position as a licence provider to the detri-
ment of alternate licensing bodies, and revoked the notifications.
Source: Australian Competition and Consumer Commission, ‘Speedway Racing Notifications Revoked’ (Media Release,
MR 169/10, 19 August 2010) http://www.accc.gov.au/media-release/speedway-racing-notifications-revoked.
The business can apply to the Australian Competition Tribunal for a review of the ACCC’s decision:
CCA Part IX.
Public benefit and public detriment
The CCA contains two different tests for authorising anti-competitive conduct: CCA s 90. Unless the
ACCC is satisfied in all circumstances that the agreement or conduct is likely to result in a public benefit
that outweighs the likely public detriment constituted by any lessening of competition, it will not grant
authorisation for:
•• proposed or existing agreements that might substantially lessen competition, or
•• proposed exclusive dealing (other than third line forcing).

Unless the ACCC is satisfied in all the circumstances that the proposed conduct is likely to result in
such a benefit to the public that the conduct should be permitted, it will not grant authorisation for:
•• primary boycotts,
•• secondary boycotts,
•• third line forcing, or
•• resale price maintenance.
‘Public benefit’ and ‘public detriment’ are not defined in the CCA. The Trade Practices Tribunal has
stated that ‘public benefit’ includes ‘anything of value to the community generally, any contribution to
the aims pursued by society including as one of its principle elements . . . the achievement of the econ-
omic goals of efficiency and progress’.12
The Australian Competition Tribunal has said of public benefits
that:
. . . they have been taken to include anything which . . . increases . . . the well-being of members of
society . . . Particular emphasis is placed on positive . . . consequences for the achievement of the goal of
maximising economic efficiency (including dynamic efficiency leading to economic progress).13
The Trade Practices Competition Tribunal has defined ‘public detriment’ as:
. . . any impairment to the community generally, any harm or damage to the aims pursued by the society
including as one of its principal elements the achievement of the goal of economic efficiency.14
Public detriment is essentially the opposite of public benefit.
List as many ‘public benefits’ as you can that might justify authorising anti-competitive agreements.
REVISION QUESTIONS
12.29 Who enforces Part IV of the CCA?
12.30 What remedies are able to be granted by the court in the event of contravention of CCA
Part IV?
12.31 Apart from an actual contravention of CCA Part IV, what other actions can lead to the
imposition of a fine by the court?
12.32 What is an ‘authorisation’ under CCA Part IV?
12.33 What is a ‘notification’ under CCA Part IV?
12.34 In what circumstances will the ACCC be obliged to assess the public benefit and/or the public
detriment arising from particular conduct?
In conclusion
•• Competition within markets is protected and promoted because it is widely believed to be good for the
consumer and good for the economy.
•• Competition in Australia is regulated by Part IV of the Competition and Consumer Act 2010 (Cth).
12 Re Queensland Cooperative Milling Association Ltd (1976) 8 ALR 481.
13 Re VFF Chicken Meat Growers’ Boycott Authorisation [2006] ATPR 42–120.
14 Re 7-Eleven Stores Pty Ltd (1994) ATPR 41–357, 42,683.

•• Part IV prohibits a range of anti-competitive conduct, including cartel conduct such as price-fixing;
misuse of market power; resale price maintenance; boycotts; exclusive dealing; anti-competitive
mergers; and agreements that have the effect of substantially lessening competition. Some forms of
conduct are prohibited if they have the effect of substantially lessening competition in a market; others
are prohibited per se.
•• A business found to be in breach of Part IV can be fined up to $10 million for corporations and
$500 000 for individuals. The authorisation and notification processes in the CCA allow the ACCC to
permit anti-competitive conduct on public benefit grounds.
JOHNNY AND ASH
[Ash and Johnny are still at the restaurant. Johnny looks devastated.]
Johnny — So you think our deal with the other restaurant owners is a bad idea?
Ash — There are strict rules against the making of agreements to work together to fix prices or reduce
the level of competition within a market. Even if your agreement isn’t formalised, the reaching of an
informal understanding is still going to be a breach of Part IV of the Competition and Consumer Act.
Johnny — And this time the fine could be up to TEN MILLION DOLLARS! Things may be tough at
the moment on Kerouac Avenue, but a $10 million fine certainly isn’t going to make things any easier.
And . . . [He pauses.]
Ash — And?
Johnny — And regardless of the potential fines, I don’t want to participate in any of Maria’s schemes
or make secret deals with my competitors. It feels like cheating, and I’m starting to realise that I would
rather succeed in business as a result of my own efforts.
Ash — Bravo, Johnny. So what are you going to do?
Johnny — I think it’s time Maria and I had a little chat.
Ash — Okay. Good idea.
Johnny — [He takes out his mobile phone and makes a call.] Maria? It’s Johnny. I’m afraid I’ve
changed my mind about a few things that we’ve been discussing lately. And we need to talk about my
involvement with the restaurant. . .

QUIZ
1 ‘Freedom of contract’
(a) no longer exists under Australian law.
(b) is a traditional principle of contract regulation.
(c) means the same as ‘caveat emptor’.
(d) informs consumer protection legislation in Australia.
2 An informal understanding between two of the three main suppliers of a product that one
supplier will not undercut the other supplier’s prices is
(a) price fixing.
(b) not price fixing because no specific price is set for the products.
(c) not price fixing because there is no formal agreement.
(d) not price fixing because only two of the three main suppliers reached the informal
understanding.
3 A wholesaler tells a retailer that while the retailer can sell the product at any price, they are
not permitted to advertise the product at a discounted price. This is
(a) price fixing.
(b) resale price maintenance.
(c) a secondary boycott.
(d) not prohibited under Part IV of the CCA.
4 The managers of three companies agree which company is to be successful in tendering for
a particular project. Two companies agree to quote higher prices to ensure that the third
company will secure the tender. This is an example of
(a) price fixing.
(b) misuse of market power.
(c) resale price maintenance.
(d) third line forcing.
5 What is the difference between a primary boycott and a secondary boycott?
(a) A primary boycott is only prohibited if it has the effect of substantially lessening competition; a
secondary boycott is prohibited per se.
(b) A primary boycott is a boycott by more than one business; a secondary boycott is a boycott by a
single business.
(c) A primary boycott is a boycott that targets more than one business; a secondary boycott is a
boycott that targets a single business.
(d) A primary boycott is a direct boycott of a business; a secondary boycott is the application of
pressure on a business to boycott another business.
6 Which of the following statements is not true?
(a) The prohibition of exclusive dealing applies to both goods and services.
(b) An agreement that has the effect of substantially lessening competition in that market cannot be
authorised by the ACCC.
(c) If an agreement is intended to have the effect of substantially lessening competition, it is illegal
even if there are a number of other purposes.
(d) The process of notification can protect a business from ACCC action for exclusive dealing.
7 Which of the following is illegal only when the conduct would have the effect of substantially
lessening competition?
(a) Resale price maintenance.
(b) Exclusive dealing.
(c) Misuse of market power.
(d) Price fixing.

8 Which of the following cannot be authorised by the ACCC?
(a) Exclusive dealing.
(b) Price fixing.
(c) A prohibited merger.
(d) Misuse of market power.
9 A business will gain immunity from legal proceedings under the CCA upon notification to the
ACCC of proposed
(a) exclusive dealing.
(b) price fixing.
(c) prohibited merger.
(d) misuse of market power.
10 The court cannot impose a fine upon a person who has merely
(a) attempted to breach CCA Part IV.
(b) counselled another to breach CCA Part IV.
(c) attempted to induce another to breach CCA Part IV.
(d) none of the above.
EXERCISES
EXERCISE 12.1 — PRICE FIXING
At the meeting of the Kerouac Street restaurant owners, the owners agree in principle that Wednesday
night will be ‘discount night’ in the street, and no owner will be permitted to have a discount night or
half-price night on any other night of the week. The owners do not put the agreement in writing. Is the
arrangement between the restaurant owners prohibited by Part IV of the CCA?
EXERCISE 12.2 — EXCLUSIVE DEALING
Johnny buys the organic falafel used in his restaurant from Idoru Ltd. When Johnny complains to Idoru
about a recent price increase, Idoru offers Johnny a special deal: Johnny will only have to pay $6 per
kilo for organic falafel for the next 12 months, but he must commit to buying all of his organic fruit from
Burning Chrome Farms. Idoru does not receive any commission from the Burning Chrome sales, and
Johnny is the only restaurant owner to be given such an arrangement.
(a) Is this arrangement prohibited by Part IV of the CCA?
(b) Would your answer be different if the arrangement was that Johnny would buy all of his organic
fruit from Idoru?
(c) If either arrangement is prohibited, could authorisation be sought from the ACCC? How?
EXERCISE 12.3 — MISUSE OF MARKET POWER
Before deciding whether or not to commit to the arrangement described in the previous question, Johnny
decides to explore his options and discovers that a small Northern Territory supplier of organic falafel,
Monalisa Overdrive, is keen to enter the Queensland market. Monalisa Overdrive offers to sell falafel to
Johnny for only $5.50 per kilo. When Idoru learns of Monalisa Overdrive’s plans, Idoru announces that
it will be selling falafel in Queensland and in the Northern Territory for only $3.00 per kilo. Monalisa
Overdrive Pty Ltd, being only a small operation, cannot compete with the lower price. Is Idoru in breach
of Part IV of the CCA?
EXERCISE 12.4 — BOYCOTTS
Johnny is concerned that if he does not participate in the new arrangement between the Kerouac Street
restaurant owners, the other owners will work together to make life difficult for him. In particular, he is
concerned that the other owners will put pressure on Idoru not to deal with him. If the other owners did
apply such pressure, would it be a breach of Part IV of the CCA?

EXERCISE 12.5 — MERGERS
Idoru sells 90 per cent of all organic falafel sold in Queensland. Idoru also sells 40 per cent of the
organic falafel in New South Wales and 30 per cent of the organic falafel in Victoria. A competing sup-
plier, Count Zero Ltd, holds 30 per cent of the New South Wales market and 15 per cent of the Victoria
market. Idoru proposes to merge with Count Zero.
(a) What problems, if any, do you see with this merger?
(b) Do you think that this merger would be legal under the CCA?
(c) What if, pursuant to CCA s 87B, Idoru offers a written undertaking to the ACCC to sell its current
New South Wales operations to another entity?
(d) What if Idoru subsequently breached this undertaking?
KEY TERMS
acquisition The purchase by one organisation of another organisation, or of all of the assets in another
organisation.
authorisation An administrative procedure whereby the ACCC authorises on public benefit grounds
conduct that would otherwise be a contravention of the CCA.
boycott 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.
cartel A contract, arrangement or understanding between two or more competitors that lessens competition
by fixing prices, controlling outputs, rigging bids or allocating customers, suppliers or territories.
competition Rivalrous market behaviour.
conditional offences Conduct only prohibited by CCA Part IV if it leads to a substantial lessening of
competition in the relevant market.
exclusionary provision A provision in an agreement between competitors intended to prevent, restrict
or limit the supply of products to, or the acquisition of products from, a particular person or class of
persons.
exclusive dealing The practice of imposing restrictions on a buyer’s freedom to choose with whom, in
what amount, or where they buy products.
full line forcing The practice of refusing to supply a product unless the buyer agrees not to buy
products of a particular kind or description from a competitor.
loss leading The practice of selling a product at less than cost in order to attract customers.
merger The voluntary combination of two or more organisations into a single organisation.
notification An administrative procedure whereby an organisation notifies the ACCC about exclusive
dealing conduct that would otherwise be a contravention of the CCA and attains immunity from
legal proceedings.
parallel importing The practice of importing products into Australia that were legally made overseas
but without the consent of the local owner or licensee of the copyright or registered design.
per se offences Conduct so obviously anti-competitive that it is prohibited outright by CCA
Part IV.
predatory pricing Charging an unrealistically low price for a product to force a competitor out of the
market.
price fixing Fixing, controlling or maintaining the price for, or a discount, allowance, rebate or credit
in relation to, goods or services.
resale price maintenance A practice whereby the supplier of a product imposes a minimum price
below which the product cannot be resold.
third line forcing The practice of supplying a product to a customer conditional upon the customer
also purchasing the product of another business.
TPC (Trade Practices Commission) The statutory authority formerly responsible for administration
of the TPA, replaced by the ACCC.

ACKNOWLEDGEMENTS
Extract: © Commonwealth of Australia, Attorney-General’s Department extract from Re Queensland
Co-operative Milling Association Ltd 1976 25 FLR 169, 189.
Extracts: © Commonwealth of Australia
Extract: © Commonwealth of Australia, Attorney-General’s Department extract from Annand &
Thompson Pty Ltd v TPC (1979) 25 ALR 91; [1979] FCA 36
QUIZ ANSWERS
1. b 2. a 3. b 4. a 5. d 6. b 7. b 8. d 9. a 10. d

LAWS1100 Nickolas James Business law 4_e_----_(chapter_12_dealing_with_competitors)

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