As an Australian business owner, you may have heard the term ‘ anti-competitive behaviour’ thrown around in the media and in business circles. But do you know what anti-competitive behaviour is and how it can potentially affect your business activities in Australia?
Anti-competitive behaviour can take many forms, and while some forms of competition are beneficial for businesses, anti-competitive behaviour can lead to significant harm to consumers and other businesses.
In this article, we’ll explain what anti-competitive behaviour is, the different types of anti-competitive behaviour, how anti-competitive behaviour can impact your business and answers to other frequently asked questions.
What is Anti-Competitive Behaviour?
In Australia, anti-competitive behaviour refers to behaviours performed by businesses that limit or prevent competition. This behaviour is illegal as the Competition and Consumer Act 2010 (Cth) (CCA) bans businesses from behaving in a way that damages competition. The CCA restricts businesses from acting anti-competitively by restricting contracts, understandings, arrangements or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market.
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What is the market in regard to anti-competitive behaviour?
The term market was defined in the legal case Re Queensland Co−operative Milling Association Ltd., Defiance Holdings Ltd. (Proposed Mergers with Barnes Milling Ltd as an area of close competition between firms or a field of rivalry between firms in which there is substitution between one product and another, and between one source of supply and another, in response to changing prices. A market has four elements:
- Level of function
What Is ‘Substantially Lessening Competition In The Market’?
Substantially lessening competition in the market is a term used to describe a situation where a business or several businesses engage in conduct that has the effect of reducing competition in a particular market to a substantial degree. The effect of being ‘substantial’ has been defined in case law as being large, weighty, big, real or of substance or not insubstantial, depending on the context. The effect is substantial if it is important or weighty relative to the size of the particular market.
In Australia, the CCA prohibits conduct that has the purpose or effect of substantially lessening competition in a market. Whether a business has substantially lessened competition is based on factors such as the following:
- The size and concentration of firms in the market
- The entrance barriers for new competitors
- The availability of substitute products or services
- The degree of market power held by the businesses involved
The Australian Competition and Consumer Commission have the power to take enforcement action against businesses or businesses if they determine that the businesses or group of businesses have substantially lessened competition in the market.
What are the different types of Anti-Competitive Behaviour?
A Cartel refers to when a group of businesses agree to act together rather than compete with each other. Cartels are illegal. There are a number of negative impacts caused by cartels, including the following:
- Healthy economic growth is restricted
- Other businesses and consumers are cheated
- They cause prices to be driven up
- Cartels caused a reduction in investment and innovation
As a result, they maintain the illusion of competition while driving up the profits of cartel members. Certain forms of anti-competitive conduct that are seen as cartel conduct include the following:
- Price fixing
- Sharing markets
- Rigging bids
- Controlling the output or limiting the number of goods and services available to buyers
According to the ACCC, cartels can be composed of businesses of all sizes, such as large corporations, small businesses, local businesses and cartels can be formed between international, national or local businesses. The laws that prohibit cartels are found in the CCA, and they apply to individuals and all Australian corporations that are involved in such activity.
Imposing Minimum Resale prices
In regards to minimum resale prices, suppliers are prohibited from setting minimum prices for resale for the goods and services they provide to businesses, as this is illegal for them to do so, according to the ACCC.
Therefore, suppliers must avoid doing any of the following:
- Provide retailers with discounted prices for selling at a price higher than the minimum
- Prescribe minimum prices as part of formal agreements or policies
- Suppliers shouldn’t discriminate against retailers who sell below the set price, for instance, by removing discounts or providing a warning
- Suppliers shouldn’t refuse to supply goods to retailers who sell under the minimum price
- Pressure businesses in order to charge their set prices; or
- Prevent resellers from advertising, displaying or selling the supplier’s goods below a particular price
In regard to resellers, it’s illegal for them to ask suppliers to ask their competitors to sell below a minimum price.
Imposing minimum resale price or ‘ resale price maintenance’ is against the law since it prevents retailers from competing on price, which therefore leads to increased prices for consumers.
Anti-competitive agreements are illegal in accordance with section 45 of the CCA. This section states that agreements that substantially lessen competition are illegal.
Exclusive dealings refer to situations when two businesses are trading, and one business imposes restrictions on the freedom of the other business in regard to the following:
- What the other business sells or buys
- Who the other business is allowed to conduct business with
- Where the other business is allowed to trade
The ACCC states that exclusive dealings are illegal when they substantially lessen competition. Therefore, it is legal if it doesn’t substantially lessen competition.
Collective Bargaining & Boycotts
Collective bargaining refers to situations where competitors come together in order to negotiate with a supplier or a customer over terms, conditions and prices. A collective boycott happens when a group of competitors decide to stop buying from or selling to the business that the group is negotiating with. They will only continue to buy or sell to the business if the business agrees to the terms and conditions set by the group.
Collective bargaining occurs when a group collectively agrees not to:
- Acquire goods or services from the business or
- Not to supply goods or services to the business
According to the ACCC, collective bargaining is likely to breach Australian Competition law. This is because, in general, competition law states that businesses must make their own decisions in regard to terms, pricing, conditions and business partners.
Misuse of market power
In general, a business having or using its market power in order to outcompete others isn’t illegal. However, it’s illegal when a business uses its market power for the purpose of substantially lessening competition. When courts are considering whether there has been a misuse of market power, they consider the following:
- Whether the business has substantial market power
- Whether the business is engaging in conduct for the purpose, effect or likely effect of substantially lessening competition
When the ACCC is determining whether a business has substantial market power, they consider the following factors:
Cooperation between businesses
Due to competition being dependent on the independent decisions made by businesses, cooperation between businesses can potentially breach competition law. The ACCC states that substantially lessening competition by contracts, arrangements, or understandings is illegal. Furthermore, it’s also illegal for businesses to create other forms of communication or cooperation that substantially lessen competition, such as cooperations that don’t involve any understanding, agreement or contract.
This refers to conduct that’s so harsh that it goes against good conscience. The definition is so general because there is no precise definition of unconscionable conduct by law. Unconscionable business behaviour is deemed as behaviour that is harsh or oppressive and beyond hard commercial bargaining.
Price signalling refers to when businesses agree on a fixed price instead of competing. This is a form of cartel conduct and is therefore illegal if it results in substantially lessened competition.
Predatory pricing refers to when a business that has substantial market power offers a very low price to consumers for its goods and services for a long period of time. Predatory pricing can be illegal because it has the potential to substantially lessen competition in the market. Predatory pricing aims to achieve the following for a business:
- Inducing competitors to leave the market
- Punishing or harming competitors that competed aggressively
- Preventing potential competitors from joining the market
Predatory pricing is illegal according to Section 46 of the CCA prohibits a corporation with a substantial degree of power in a market from engaging in conduct that has the purpose or effect of substantially lessening competition in that or any other market. This includes predatory pricing.
How does the Australian Competition and Consumer Commission regulate anti-competitive behaviour?
The ACCC does the following to address anti-competitive behaviour in Australia:
- The ACCC investigates potentially illegal anti-competitive behaviour
- Promotes and protects market competition
- The ACCC provides businesses with information in regard to their obligations pursuant to the laws related to competition
- The ACCC enforces the law in relation to anti-competitive behaviour by taking action against businesses breaking the law
However, you should be aware that the ACCC doesn’t get directly involved in disputes between businesses or provide legal advice to businesses.
Frequently Asked Questions (FAQs)
Why is competitive behaviour important for businesses?
Competition between businesses is crucial due to the following positive impacts:
- As a result of competition, businesses are compelled to be innovative and improve their efficiency
- Lower prices for consumers
- Services and products of a higher standard
- Consumers have more options
- An increase in prosperity and welfare for all Australians
How can you report anti-competitive behaviour?
Everyone has the ability to report anti-competitive business behaviour to the ACCC. The steps on how to make a complaint as a business are outlined by the ACCC. The three steps are as follows:
- Contacting the supplier in regard to the issues related to the services or goods that have been supplied to you. It’s recommended that you outline the issues that you have with the services or goods in writing
- Contacting the ACC or another third party to help you resolve your issue with the supplier. If your complaint is in regard to illegal anti-competitive behaviour by another business, you should get in touch with the ACCC. You can also contact the ACCC in regard to issues you have with goods that have been supplied to you as well as Industry ombudsmen and dispute resolution schemes and state and territory consumer protection agencies
- If your issue is still unresolved after contacting the ACCC or another third party, you can take legal action. Before you take this step, you should hire a lawyer for legal advice to see whether legal action is needed. Legal action can be expensive, and success is not guaranteed
What behaviour would be considered to be legal?
If your business behaviour is legitimate, it’s highly unlike that your business will be breaking the law. Competition on fair terms is acceptable as long as a business doesn’t restrict its competitor, regardless of the harm it may cause to a competitor’s business. The following behaviour would be considered to be legal behaviour according to the ACCC:
- Making improvements to products or services or inventing new ones by investing in research
- Making honest and accurate claims in advertising their products or services in order to gain customers
- Reducing costs by optimising their processes
- Creating new products that cause a market to be disrupted
- Offering lower prices in response to price competition
- Starting a new business that’s similar to another business in a nearby location
It’s not illegal to engage in such behaviour because it benefits consumers and the economy.
Can you seek an exemption from behaviour that might constitute as anti-competitive behaviour?
Your business can seek an exemption from behaviour that is potentially anti-competitive and would therefore breach competition law from the ACCC. If your business is provided with the exemption, it’s protected from any legal action being brought against it in relation to the arrangement or conduct. You should be aware that the ACCC only provides exemptions for behaviour that’s in the public’s interest and for behaviour that doesn’t substantially lessen competition.
What are the consequences of anti-competitive behaviour?
Due to anti-competitive behaviour breaching Part IV of the CCA, there are legal consequences. You should be aware that the maximum penalty for a corporation that breaches Part IV of the CCA is a fine of $50,000,000. Whereas the maximum penalty for an individual breaching Part IV is $2,500,000.
More specifically, if an individual is found to be participating in a cartel, they can face up to 10 years of jail or receive a fine of up to 2000 penalty units. If a corporation is found to be participating in a secondary boycott, it can face penalties of up to $750,000
In conclusion, anti-competitive behaviour is illegal because it is unfair to substantially limit competition in a market. If you’re concerned because a competitor is participating in anti-competitive behaviour, you should hire a lawyer for legal advice to determine whether they are behaving in an anti-competitive manner.
Contrastingly, if you are unsure whether your business is behaving in an anti-competitive way, you should hire a lawyer for legal advice so that you can avoid the legal consequences associated with anti-competitive behaviour.
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