Australia: Online retailing competition issues

Last Updated: 22 June 2013
Article by Kathryn Edghill and Amy Cowper

Just because it occurs online does not mean the law doesn't apply

The rapid growth of online retailing and the challenges it is bringing for traditional bricks and mortar retailers is well documented. Less well documented is how the law is adapting to this fundamental change in the retail sector. The relative ease with which online trading can be established and performed can lead some traders to ignore some fundamental legal requirements and obligations which must be met if online trading is to be lawfully conducted in Australia. Importantly, this extends to competition laws regulating dealings with, and towards, competitors.

At the same time, some established bricks and mortar retailers can be tempted to react to the competitive tensions that online retailers bring, in ways which may breach competition laws. For online traders and bricks and mortar retailers alike, understanding who your competitors are and your obligations in respect of your dealings with them is a key requirement, ignorance of which can lead to significant breaches of competition laws.

Who is your competitor?

The Competition and Consumer Act 2010 (Cth) (CCA) contains provisions that regulate dealings between and the conduct of competitors towards each other. This includes prohibitions on:

  • Price fixing and other forms of cartel conduct between competitors (including market sharing, tender or bid rigging and output restrictions).
  • Agreements between competitors that prevent, limit or restrict a party from supplying goods or services to, or acquiring goods or services from, particular persons or classes of persons (exclusionary provisions or boycotts).
  • Agreements that have the purpose, effect or likely effect of substantially lessening competition in a market.
  • Misuse of market power, which occurs where a party with a substantial degree of market power takes advantage of that for the purpose of substantially damaging or eliminating a competitor or preventing a party from entering or competing in a market.
  • Predatory pricing, which occurs where a party with a substantial market share prices below relevant cost for a sustained period for the purpose of substantially damaging or eliminating a competitor or preventing a party from entering or competing in a market.

The lack of a tangible, physical presence of some online retailers does not mean that they do not compete with bricks and mortar retailers. The key to determining who your competitors are lies in the types of products and services supplied. If an online retailer sells goods or services which are substitutable for those of a bricks and mortar retailer, the chances are that the two will be competitors and each will be subject to the prohibitions contained in the CCA.

A simple test to determine whether products or services are substitutable is to ask that if you increased prices on products and services significantly, would customers switch to buying the products and services of the other party? If the answer to that question is 'yes', chances are you and the other party will be competitors for competition law purposes.

What about overseas online retailers?

Online retailers based overseas can be regarded as competitors of Australian online and bricks and mortar retailers if they sell to Australian consumers and their products and services are substitutable with those of the Australian online or bricks and mortar retailers. The application of Australian laws to online retailers based overseas can be complex, especially in terms of bringing them within the jurisdiction of Australian courts, but Australian retailers should not assume that just because an online retailer is based overseas, they can act anti-competitively towards them.

But online retailers are pricing too cheaply.

Of the many reasons why online retailing has become so popular with consumers is that such retailers can often price much more cheaply than bricks and mortar retailers. This is often the case with online retailers based overseas. Australian retailers need to be careful when formulating strategies to deal with the competition that flows from such pricing to avoid conduct which could be regarded as a breach of the CCA, including cartel conduct (ie, agreeing with other competitors to fix prices or share the market), misuse of market power (ie, by using their market power to prevent such retailers obtaining supply of goods or services in Australia) and predatory pricing.

The role of suppliers.

Putting pressure on suppliers not to supply online retailers in order to drive such retailers out of the market or substantially damage them or prevent them from entering the market can be misuse of market power, if the party putting that pressure on the supplier has a substantial degree of market power.

Suppliers who require online retailers to sell at or above a specified price for any purpose (including to keep margins high, or to keep bricks and mortar retailers happy) will be in breach of the prohibition on resale price maintenance. Refusing to supply online retailers who won't agree to sell at or above a specified minimum price, or because they discount prices of their goods, is also a breach of the prohibition on resale price maintenance.

How should competing online and bricks and mortar retailers interact to avoid breaching competition laws?

The simple answer: carefully and with regard to the various prohibitions outlined in this article. Online retailers should remember that just because retailing occurs online, it does not create an exemption from the application of competition laws. Bricks and mortar retailers should remember that just because a retailer does not have a physical presence does not mean that competition laws don't apply in respect of their conduct towards online retailers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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