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Price maintenance costs Morning Star $50,000

Price maintenance costs Morning Star $50,000

Morning Star was ordered to pay a penalty of $50,000 plus costs in the Auckland High Court last month for retail price maintenance — an anticompetitive practice where a supplier specifies the minimum price a reseller can charge for goods.

The Manukau City-based second-tier distributor admitted to the court that between 2 July and 12 July 2004, employees telephoned 16 or more resellers asking them not to advertise certain products below specified prices.

In addition, Morning Star threatened to penalise resellers not complying with the instructions and offered inducements to resellers who fell into line.

In her judgement, Justice Marion Frater said the company’s action had deprived the market of price competition. However, she also said the company had cooperated with the Commerce Commission during its investigations.

According to a Commerce Commission spokeswoman, the $50,000 penalty represents a serious breach of Section 37 of the Commerce Act. This section forbids resale price maintenance. Suppliers and other distributors are allowed to recommend retail prices but cannot enforce any minimum price.

She said penalties are normally set at three times the value of any financial gain received from the price-fixing. The punishment is a penalty not a fine because the standard of legal proof required by the court is only ‘more likely than not’ as opposed to the more stringent ‘beyond reasonable doubt’ required in criminal cases.

One interesting aspect of the case was that the Commerce Commission’s investigators were able to track Morning Star’s price maintenance by monitoring back-dated price changes on the PriceSpy website (www.pricespy.co.nz). The site tracks retail prices of a range of technology products. The data clearly showed resellers lifted prices for a number of products at around the time of or shortly after the phone calls.

In an emailed response to questions the Commerce Commission spokeswoman wrote; “Resale price maintenance [RPM] is anti-competitive because it can lead to a reduction in price competition for the affected products in the market. The RPM conduct by Morning Star to its resellers had an effect in that, following the attempted price-fixing, there was a corresponding increase in resellers’ advertised prices of the affected products on the PriceSpy website.”

Six products were identified as having their prices fixed: three AOC-branded monitors, two Billion routers and an Asustek notebook. Morning Star is the exclusive New Zealand distributor for some of these items.


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