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Legislation

Trade Practices Amendment (Guaranteed Lowest Prices - Blacktown Amendment) Bill 2009

 

Overview

The Bill was introduced by Senator Xenophon and Senator Barnaby Joyce was drafted by Assoc Prof Frank Zumbo. In his second reading speech, Joyce began:

Small business in this nation has been under a sustained and carefully orchestrated attack for years, where larger, often retail giants, put ever increasing pressure to bear on smaller independents—who are mostly “mum and dad” businesses. These mum and dad businesses are the lifeblood of the community, especially in rural and regional Australia. They are the forgotten people considered to be dispensable by the free marketeers. ...

The Blacktown Amendment is designed to curb the anti-competitive practice of geographic price discrimination. The Blacktown Amendment proposes to ensure that big businesses will charge the same price for the same product in the same geographic region, which is within 35km radius of adjacent retail outlets operated under the same trading name by a corporation or related entity. Same price includes any offer based on a discount, rebate, credit or allowance offered to customers.

In his second reading speech Xenophon stated (amongst other things):

... we are proposing the Blacktown Amendment whose purpose is to deal with geographic price discrimination.

The Blacktown Amendment does this by stating that a company must, at a retail outlet operated by the corporation, sell or offer to sell a particular product to a consumer at a price being the lowest price the product is offered for sale at the same time at any retail outlet operated by the company under the same trading name within a distance of 35 kilometres. ...

 

Global Competition Law And Economics

"A Bill for an Act to amend the Trade Practices Act 1974 to reduce predatory pricing by requiring corporations to offer and supply products at consistent prices across adjacent markets, and for related purposes"

 

Senate Inquiry

A Senate Inquiry recommended against passage of the bill, finding that 'there are legitimate operational reasons as to why the price of a good may vary between a company's metropolitan stores', that 'the bill does not differentiate between price discrimination that is competitive and advantages the consumer with lower price outcomes and price discrimination that is non-competitive and possibly predatory and is of disadvantage to consumers' and noting that the committee had 'grave concerns that this legislation may unintentionally result in higher prices for consumers for retail goods as a result of uniform pricing with no "guaranteed" lowest prices being offered at all.'

 

Key provisions

The bill proposed to insert a new s 46C:

46C

(1) A corporation must, at a retail outlet operated by the corporation or a related entity, supply or offer to supply a particular product to a consumer at a price being the lowest price the product is supplied or offered for supply at the same time at any retail outlet operated by the corporation or a related entity under the same trading name 11 within a distance of 35 kilometres. 12

(2) The rule set out in subsection (1) is the Guaranteed Lowest Prices Rule.

(3) Subject to subsection (4), the following are to be disregarded for the purposes of subsection (1):

(a) a price of a product supplied or offered for supply at a genuine factory, warehouse, or clearance outlet;

(b) a price of a product marked down because the outlet is genuinely closing down;

(c) a price of a product marked down because the product is imminently perishable;

(d) a price of a product marked down because the product or its packaging is damaged;

(e) a price of a product marked down because the product is to be permanently removed from the range of products supplied or offered for supply at the retail outlet;

(f) a price of a product marked down because the product has deteriorated in value as a result of being on display in a retail outlet for a substantial period of time, having regard to the nature of the product

(4) Where the corporation or a related entity operates more than one of the outlets referred to in paragraph (3)(a), the Guaranteed Lowest Prices Rule applies in relation to each of those outlets.

(5) Where a corporation or a related entity offers a discount, rebate, credit, allowance, or special deal to consumers in relation to a product or products to which the Guaranteed Lowest Prices Rule applies, it must, where the terms and conditions relating to discount, rebate, credit, or allowance or special deal are met, offer the same discount, rebate, credit, allowance, or special deal in relation to that product or those products at each retail outlet covered by the Guaranteed Lowest Prices Rule.

(6) Where a corporation or a related entity imposes a surcharge on consumers in relation to a product or products to which the Guaranteed Lowest Prices Rule applies, it must impose the surcharge in relation to that product or those products on the same terms and conditions at each retail outlet covered by the Guaranteed Lowest Prices Rule.

(7) Subsections (1), (4), (5) and (6) do not apply to a corporation where that corporation or a related entity operates five retail outlets or less in Australia under the same trading name.

(8) In this section:

price means the price at which the product is available for purchase by any member of the general public.

retail outlet operated by, in relation to a corporation or a related entity, means a physical establishment where products are offered for sale to the general public and where the corporation or a related entity sets the price at which the products are offered for sale.

trading name, in relation to a corporation or a related entity, means the name that the corporation or a related entity trades under or the name by which it is known to its suppliers or customers.

 

History

When the Trade Practices Act (now Competition and Consumer Act) was originally introduced in 1974 it contained a prohibition on price discrimination in s 49. This was subject to a competition test and was primarily concerned with price discrimination as between suppliers and retailers. After numerous recommendations for repeal, it was eventually repealed by the Competition Policy Reform Act 1995, s 14.

There have been several major reviews into competition policy which have either recommended the repeal of price discrimination laws or recommended against their re-introduction. This has been on various grounds, including the fact that price discrimination can be pro-competitive, that there are justifications for price discrimination which are not anti-competitive and that where price discrimination is anti-competitive, s 46 (misuse of market power) is the appropriate mechanism for consideration of the practice. See, for example:

  • Swanson Committee Report chapter 7 (1976)
    • Observing that the prohibition on price discrimination that was at the time contained in s 49 (and subject to a competition test) of the Act had 'operated substantially to limit price flexibility' and had 'produced such price inflexibility that the detriment to the economy as a whole from the operation of the section outweighs assistance which small business may have derived from it. It is price flexibility which is at the very heart of competitive behaviour' - the committee recommended that s 49 be repealed.
    • The recommendation to repeal was at first accepted by the Government, with John Howard stating in his second reading speech:
      • ... the Government has accepted the recommendation of the review committee that the prohibition of price discrimination be repealed. That prohibition has worked to inhibit price flexibility, and has not encouraged competition. In fact the review committee stated that this law has actually been used as a pretext to abolish discounts and effectively raise prices. (House of Representatives, Hansard, Wednesday 8 December 1976)
    • but the bill introduced to repeal the provision (Trade Practices Amendment Bill 1977) lapsed in February 1977 and when another amendment bill was introduced and passed (Trade Practices Amendment Bill 1977) it did not contain the provision to repeal s 49 - that was omitted for the express reason f small business protection (see, eg, second reading speech of Mr Tony Whitlam (here and here) and Mr Mick Young)
  • Blunt Report (Small Business and the Trade Practices Act) chapter 9 (section 4) and chapter 10 (1979)
    • This report considered price discrimination/price differentiation in great detail and is well worth reading. It is also useful for its comparisons of s 49 and the Robinson Patman Act in the US.
    • Observing (at 9.30) that 'the flexibility of pricing is impaired by the operation of section 49 ... We agree with the Swanson Committee's view ... that section 49 has had a detrimental effect' (the Committee considered price discrimination was more appropriately addressed under s 46 (misuse of market power) than through a separate prohibition.
    • The committee observed (at 10.6-10.7) that the section had its origins in the US Robinson Patman Act which "has been criticised with virtual unanimity by economists and academic anti-trust experts as impeding, rather than promoting, competition [and] there is now a strong move afoot to repeal it" (quoting Prof Stephen Breyar, Harvard Law School) (although not repealed, the Robinson Patman Act is now never enforced in the US). Quoting Breyar again, the Committee observed (at 10.8), that 'the more concentrated the industry in an economy, the more harm that can be done by a rule against price discrimination. For these reasons, a strict interpretation of s 49 is likely to prove particularly harmful in Australia ... the net effect of preventing price discrimination is more likely to be uniformly high prices than uniformly low ones'.
    • The committee noted (at 10.34): '... price differentiation may be desirable or undesirable, depending upon its effects on competiiton. Generally unsystematic price discrimination which is pro-competitive by encouraging price experiementation and maintaining flexibility is desirable and should not be discouraged. However, systematic price differentiation may have on occasion anti-competitive effects. It may be used to preserve and strengthen a monopoly position, to tie buyers together with sellers giving discounts for concentrated purchases or make entry into segments of a market difficult of impossible.'
    • At 10.100 the Committee expresses the view that section 49 'is not, and should not, be viewed as a charter for the preservation of small business. THis is so, particularly in cases where such small businesses are inefficient ... and where their disappearance from the market woudl not make it less competitive. ...'
    • The Committee concluded:
      • [10.109]: "[Section 49] is one of the measures adopted under the Trade Practices Act in pursuit of its overall objective, which is the reduction of the level of conduct in Australian industry which works against the efficient and economic allocation of resources. In our view it is not a provision designed specifically to assist small business and it would not be appropriate to amend it to make it a provision to prohibit price discrimination that disadvantages individuals. Such price discrimination is but one manifestation of abuse of market power and should be regulated under the general provision section 46, as we suggest it be amended."
      • [10.111]: "It is our conclusion, however, that section 49 is not capable, in practice, of having the effects sought, because of doubts by business as to its interpretation, as well as inconsistencies with other provisions in Part IV of the Act, Its anticompetitive inflationary effects are undesirable. These difficulties cannot be overcome by redrafting the section."
      • [10.112]: "It follows that in reviewing section 49, we have come to the inescapable cone1 usion that we must recommend that it be repealed."
  • Hilmer Report chapter 4, section B (1993) - see in particular pages 74-80
    • Recommended "repealing the specific prohibition on price discrimination, with any anti-competitive conduct in this area addressed under the prohibition on the misuse of market power" (at page xxiii)
    • At page 74: "The prohibition against price discrimination prevents the sale of like goods to different persons at different prices, where such discrimination substantially lessens competition. The provision is contrary to the objective of economic efficiency and has not been of assistance to small businesses. The Committee does not believe that it is the role of the competitive conduct rules to protect any particular sector of society, and does not believe that the competition rules should be used to achipve objectives contrary to economic efficiency."
  • Dawson Review chapter 4 (Trade Practices Act Review - reported 2003)
    • The Committee observed that:
      • "In 1993, the Hilmer Committee recommended that section 49 be repealed. The Hilmer Committee's recommendation echoed the concerns of previous inquiries, including the Swanson Review in 1976 and the Blunt Review in 1979. The concern was that section 49 generally discouraged competitive prices and so worked against economically efficient outcomes. The Hilmer Committee concluded that price discrimination generally enhances economic efficiency, except in cases which might be dealt with by section 45 (anti-competitive agreements) or section 46 (misuse of market power). To the extent that section 49 had any effect, the Hilmer Committee thought that it had diminished price competition. It recommended that a provision such as section 49 should form no part of a national competition policy. Section 49 was repealed in 1995. The second reading speech for the amending legislation, the Competition Policy Reform Act 1995, said:
        • 'The prohibition against price discrimination is to be repealed as the provision is largely redundant, and the conduct it is designed to address is adequately covered by other provisions of the Act.' "
      • "Price discrimination may be anti-competitive or pro-competitive. Price discrimination will be anti-competitive when it is used to create a barrier to entry to the market or to force competitors from the market. On the other hand, price cutting, even if it is in favour of a large buyer and hence discriminatory, may be more pro-competitive than anti-competitive. It may engender competition from rival suppliers or in the market generally. As the Swanson Committee observed in 1976, it is price flexibility which is at the heart of competitive behaviour and a general prohibition against price discrimination would substantially limit price flexibility."
    • Recommendation 4.1: "No change should be made to the Act in relation to price discrimination."

See also the submission of Treasury to the Senate inquiry into the milk price wars - it discusses the history of price discrimination in Australia and some of the key issues.

 

Discussion