On 21 October 2014, the Australian Competition and Consumer Commission (ACCC) has issued a draft determination proposing to grant conditional authorization to an Australian power tool company to set minimum retail prices on its power tools for three years. This is the first ever application for authorization to set minimum retail prices, a practice known as resale price maintenance (RPM), under the Competition and Consumer Act 2010 (CCA) in Australia. Without authorization, RPM is strictly prohibited under section 48 of the CCA, regardless of the impact it may have on competition. The ACCC may grant an authorization if it is satisfied that the detriment arising from the impact of the conduct on competition will be outweighed by public benefits. The applicant company is the exclusive importer and wholesaler of these specific power tools, which are differentiated products that require a high level of both pre- and post-sales services. In its draft determination the ACCC noted that:
- although the RPM conduct will result in some customers facing a higher retail price for the products, retail customers will still have a very wide range of alternative trade quality power tools available to them, and
- the company has little incentive to set minimum retail prices above competitive levels since this would likely reduce product sales.
In considering public benefits, the ACCC concluded that the conduct would address a form of market failure in terms of some retailers ‘free-riding’ by making sales in circumstances where:
- their customers would have the benefit of the applicant company’s pre- and post-sales services; and
- the retail price would not reflect the cost of these services; and
- the applicant company would be under pressure from other retailers to lower the wholesale price of the power tools in order to stay competitive, which would be likely to have the effect of the applicant company ceasing to provide pre- and post-sales services.
On balance, the ACCC considered that in these particular circumstances, the RPM will result in public benefit because the increase in retail services will likely outweigh the clear, but limited, detriment resulting from the higher retail price for the power tools that some customers will face. However, the ACCC proposes to impose conditions requiring the applicant company to provide the ACCC with information so it can monitor the impacts of the RPM conduct and consider future application for re-authorization by the applicant company. The ACCC is seeking submissions from interested parties by 7 November 2014 in relation to its draft determination, before making a final decision.