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Restrictive Trade Practices

This week’s article focuses on restrictive trade pratices. It higlights the importance of conducts that are restricted under the Fiji Commerce Commision Decree(2010) and the impact of restrictive trade practices.
25 Apr 2016 12:24
Restrictive Trade Practices
Law

This week’s article focuses on restrictive trade pratices. It higlights the importance of conducts that are restricted under the Fiji Commerce Commision Decree(2010) and the impact of restrictive trade practices.
Bobby Maharaj is the chief executive of the Fiji Commerce Commission. This is a regular column from the Commission in the Fiji Sun.

What Is Restrictive Trade Practices?

Restrictive Trade Practices (“RTP”) are anti-competitive activities that unduly prevent, restrict or distort competition or certain business practices that limit or prevent competition are against the law.  RTP’s involves a business agreement between companies which controls prices or the areas in which goods are sold, preventing fair competition from other companies. It is done with the intention to limit competition for a particular good or service in a particular market.

A restrictive arrangement is an arrangement entered into by persons conducting business, according to which at least one of the parties restricts itself in a manner liable to eliminate or reduce the business competition between it and the other parties to the arrangement, or any of them, or between it and a person not party to the arrangement.

These are agreements, understanding or a plan of action between two or more people/traders that has the effect of lessening competition in a market. Such agreements by traders can distort competition by cooperating with competitors, fixing prices or dividing the market up so that each one has a monopoly in part of the market. Anti-competitive agreements can be open or secret (e.g. cartels).

The understanding, agreement, contract or convenant could be express or implied, whether written, oral or by behavior, whether or not legally binding.

 

What conducts are restricted under Commerce Commission Decree 2010 (CCD2010)

Part six of the Commerce Commission Decree 2010 prohibits restrictive trade practices. These prohibited restrictive trade practices includes, but not limited to:

• Exclusionary provisions (also known as primary boycotts): when competitors agree not to supply (or buy) goods or services to a particular person or class of persons, or when competitors agree to prevent or hinder the acquisition of goods or services from a particular person or class of persons.

• Price fixing: a contract, arrangement or understanding with a competitor that has the purpose or the effect, or the likely effect, of fixing, controlling or maintaining prices, discount levels, allowances, rebates or credits in relation to goods or services.

• Third line forcing: requiring a customer to acquire goods or services from another person as a condition of the supply of your goods or services to that customer. It also includes refusing to supply because the customer has not accepted the condition to acquire goods or services from another, or setting prices according to whether a customer has acquired goods or services from another person.

• Resale price maintenance: when a supplier sets a minimum price below which resellers must not resell goods.

• Anti-competitive contracts: the making or giving effect to general anticompetitive contracts, arrangements or understandings. These are any contracts, arrangements or understandings that have the purpose or likely effect of substantially lessening competition in a market.

• Exclusive dealings: prohibits specified conduct involving product exclusivity, tying arrangements and customer and territory exclusivity, in circumstances where the conduct results in a substantial lessening of competition in the relevant market.

• Mergers and acquisitions: if the effect would be to substantially lessen competition in a market.

• Misuse of market power: when an entity that has a substantial degree of market power takes advantage of that power for one of the prescribed purposes. The prescribed purposes are eliminating or damaging a competitor, preventing a person from entering a market, or deterring or preventing a person from engaging in competitive conduct.

• Collusive tendering (bid-rigging) – occurs when two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the members to ‘win’ the tender. Participants in a bid rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender.

• Price discrimination – occurs when like goods or services are provided to different persons at different prices, the difference in price being unrelated to the cost of delivery or sale of providing the goods or services.

• Predatory pricing – occurs when a company with substantial market power or share of a market sets it’s prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market. This leaves the company with less competition so it can disregard market forces, raise prices and exploit consumers.

Impact of Restrictive Trade Practices

Where the market is faced with situations of restrictive trade practices, the following are the likely impact on the economy, consumers and businesses.

• Limiting or restraining free and fair competition, or are in unreasonable restraint of trade;

• Unjustly eliminating a trade competitor;

• Increased price of goods or promote unfairly the advantage of suppliers or distributors of goods at the expense of the public;

• A business is  able to secure a substantial or complete control of the supply or distribution of goods contrary to public interest;

• Without a justified cause restrict the supply of goods to any person or give preference in regard to the provision of, or the placing of orders for the supply of goods;

• Restrict unjustly the exercise by any person of his freedom of choice as to what goods he will supply or distribute or the area in which he will supply or distribute his goods;

• Impose unjust conditions in regard to the supply or distribution of goods;

• Exclude without good reason new entrants to any trade or industry;

• Secure unjustly the territorial division of markets between particular persons or classes of persons to the exclusion of others;

• Operate against the public interest or are not in accordance with the principles of social justice and competition.

Benefits of Competition

Low prices for all: the simplest way for a company to gain a high market share is to offer a better price. In a competitive market, prices are pushed down. Not only is this good for consumers, when more people can afford to buy products, it encourages businesses to produce and boosts the economy in general.

Better quality: Competition also encourages businesses to improve the quality of goods and services they sell – to attract more customers and expand market share. Quality can mean various things: products that last longer or work better, better after-sales or technical support or friendlier and better service.

More choice: In a competitive market, businesses will try to make their products different from the rest. This results in greater choice – so consumers can select the product that offers the right balance between price and quality.

Innovation: To deliver this choice, and produce better products, businesses need to be innovative – in their product concepts, design, production techniques, services etc.

Better competitors in global markets: Competition within Fiji helps make Fijian companies stronger outside Fiji too  and able to hold their own against global competitors.

In addition competition can can yield: 

• Greater efficiency and productivity,

• Economic development and growth,

• Greater wealth equality,

• A stronger democracy by dispersing economic power, and

• Greater wellbeing by promoting individual initiative, liberty, and free association.

Next Week: Substantial Market Power

For more information/details on price regulation in Fiji, visit website at www.commcomm.gov.fj or join Facebook  page under Fiji Commerce Commission.

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