13 Nov 2014

ACCC proposes to grant conditional authorisation for resale price maintenance for the first time

by Michael Corrigan, Ian Reynolds, Charlotte Gordon

The ACCC's assessment of applications for authorisation of resale price maintenance will depend heavily on the circumstances of each case and the balance between public benefits and detriments.

Until now, suppliers have been prohibited from setting minimum resale prices that downstream wholesalers or retailers can charge consumers.

In its consideration of the first application to set minimum resale prices under current legislation, the ACCC has indicated that it might authorise such conduct if it is satisfied that the potential public benefits will outweigh the public detriment.

However, the ACCC's focus on the unique circumstances of this application make it unlikely for authorised resale price maintenance to be within the grasp of many suppliers.

Background

On 21 October 2014, the ACCC issued a draft determination proposing to grant conditional authorisation to Tooltechnic to set minimum retail prices on Festool power tools for a three year period.

Tooltechnic, an exclusive importer and wholesaler of Festool power tools, applied for authorisation to amend agreements with its dealers to include a provision that they not resell any Festool products below minimum prices set by Tooltechnic.

How does the ACCC regulate resale price maintenance?

Resale price maintenance occurs when suppliers prevent or discourage retailers from reselling a supplier's products or services below a specified price and is prohibited under section 48 of the Competition and Consumer Act 2010.

The likely effect of resale price maintenance is that retailers are discouraged from competing on price, resulting in some consumers paying more for a product.

The ACCC's enforcement toolbox

The ACCC can authorise resale price maintenance in certain circumstances under section 88(8A) of the Competition and Consumer Act, and proposes to do so for the first time in the case of Tooltechnic. Interestingly, Tooltechnic was fined in 2007 for engaging in conduct similar to that which the ACCC now proposes to authorise.

In its application, Tooltechnic submitted that as a result of the complex and differentiated nature of Festool products, pre-sale and post-sale services such as product demonstrations, repairs and customer training were critical to Festool sales. It argued that without a minimum resale price, consumers were able to access these services to inform their choice and ultimately purchase Festool products from a retailer that did not offer those services at a discounted price. This removed the incentive for full-service retailers to continue to offer pre-sale and post-sale services.

In proposing to grant authorisation, the ACCC considered:

  • Tooltechnic's very small market share and the significant number of other larger suppliers of trade quality power tools;
  • the complex and highly-differentiated nature of Festool products;
  • the potential for resale price maintenance to limit free-riding by discount retailers that do not invest in pre-sale and post-sale services but benefit from other retailers having done so;
  • the likelihood that setting minimum resale prices would limit free riding by encouraging retailers to offer better services rather than lower prices to attract customers; and
  • the disincentive for Tooltechnic to set minimum retail prices above competitive levels because doing so would likely reduce Festool sales overall.

The ACCC proposes to limit the authorisation to a period of three years, rather than the five years sought by Tooltechnic because of the first-time status of the application and the difficulty in determining the extent to which resale price maintenance will encourage a greater provision of pre-sales and post-sales services by retailers. It also would impose conditions on the authorisation, so that Tooltechnic is required to provide the ACCC with information during the authorisation period to enable it to monitor the impacts of resale price maintenance.

The proposal follows a recommendation contained in the recent Harper Competition Policy Review Draft Report that the notification process be extended to include resale price maintenance. This would provide businesses with a cheaper and faster alternative to authorisation.

The draft determination makes it clear that the ACCC's assessment of applications for authorisation of resale price maintenance will depend heavily on the circumstances of each case and the delicate balance it needs to strike between public benefits and detriments. Although it is a positive development, authorisation is unlikely to be available to suppliers more broadly, particularly for those with larger market share and less complex products.

The ACCC will make a final decision after considering submissions from interested parties, which were due on 7 November 2014.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.