Oh dear! Here I am writing articles on the Commerce Act and how nasty it can be, and now I can give you some examples from within this very industry.
As you will remember (I hope) from my last column, the Commerce Act prohibits anticompetitive conduct in the New Zealand market. This is because when a market is not competitive, the prices of goods and services are higher than they would be through the natural market mechanism. I told you about the humongous penalties that can be awarded against market participants who carry out anti-competitive conduct — the greater of $10 million, three times the commercial gain or 10% of group turnover.
That column was about a business that tried to persuade all of its suppliers not to supply the new Australian entrant into the New Zealand market.
It’s pretty obvious that this would be anticompetitive. Similarly, price fixing is a pretty obvious prohibited conduct — if competitors agree to keep their prices up, there cannot be true competition. But one of the less commonly understood anticompetitive mechanisms is resale price maintenance. This happens when a supplier punishes, or threatens to punish, a reseller if the reseller starts discounting. It keeps the retail price artificially high, so that market forces cannot find the natural price point for that product. End result: customers pay more than they should.
The Commerce Commission has recently dealt with two resale price maintenance investigations within the industry. In the first, it investigated Morning Star, which contacted at least 16 resellers to induce them to stop discounting, threatening to impose penalties on resellers who didn't comply and offering benefits to those who did. Morning Star was penalised $50,000 plus $3624 costs, after it admitted the charges. The second culprit was Digitalblue, which told reseller Dick Smith Electronics that it would restrict supply of product unless Dick Smith raised its price. In that case the Commerce Commission decided not to prosecute, mainly because Digitalblue’s conduct was not widespread and in any case Dick Smith refused to respond to the threat. Digitalblue was very fortunate: all the signs indicate that Commerce Act penalties are rapidly increasing.
Now, people always whinge about competitors who are discounters. But if you do this, you shouldn't expect your suppliers to respond and “help you out” — they're at great risk of breaching the Commerce Act if they do. You’re at risk too — of being party to a Commerce Act breach.
A supplier is allowed by the Act to set a recommended retail price, providing there is no compulsion to charge that particular price. An RRP is the supplier’s wishful thinking, reflecting the price point the supplier would like to see that product selling for in the marketplace. The key element of resale price maintenance, however, is the threatened or actual disadvantage to the discounter — restriction of supply, increased supply price only because of the discounting (as against, say, normal volume discounting), delays in supply, and other disadvantageous conduct by the supplier.
One further point: if you want to whinge about a discounter, don't do it to, or with other like-minded competitors. That is just not smart. And it's likely to land you in even more hot water — they are your competitors, and they don’t owe you any favours.
You can read more about the Commerce Act on the Commerce Commission website www.comcom.govt.nz. While you’re in there, have a look at the Commerce Act media releases — they'll tell you a lot more great stories about people coming unstuck by trying to get at their competitors in unlawful ways. Fun!
This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at firstname.lastname@example.org.