Given the level of continuous scrutiny of the Australian fuel market, a good knowledge of the Australian Competition and Consumer Act (2010) – which is commonly referred to as Australian Competition Law (ACL) – is essential for the proper management of regulatory risk within your business.
A common misconception among business owners – particularly those in small business – is that competition law is primarily about protecting businesses from economic loss due to the ‘fair’ actions of other businesses who, often because of their size, can offer lower prices or a wider range of other products to consumers.
It is important to note that competition laws are not designed to – and simply cannot – address “natural market disadvantage”.
In fact, the principal objective of ACL is to ensure that market competition is ‘alive and well’ with the end goal being to ensure that Australian Consumers get the best possible price for goods and services.
The most common example of “natural market disadvantage” is where a small business (often with limited wholesale buying power and internal resources) is required to compete with a big business (that generally has better wholesale buying power and greater internal resources).
As a result, the smaller business generally has to pay a higher unit cost for wholesale products and has less to invest in the ‘look and feel’ of their store and/or less money to spend on overall marketing of their business – and are therefore at a ‘natural market disadvantage’.
In this context, the survival of the fittest principle applies. Small businesses must find a way to compete with the larger business despite their natural market disadvantage (This often means finding something that makes a difference via personalisation of services and/or products as has occurred in the case of the growth of convenience stores – with their ease of access – and supermarkets, for instance)
The good news is, however, that the market is not homogenous. Typically, the Australian market place is characterised by a small number of very large communities (where large businesses tend to have an advantage) and a larger number of smaller communities (where smaller businesses have an advantage in terms of agility).
So, in essence, Australia’s competition laws are premised on the right of different sized businesses compete “fairly” alongside each other in an environment that delivers value to end-consumers.
“It is this concept of ‘fair market competition delivering positive consumer outcomes’ that forms the foundation of the ACL and has been used to identify anti-competitive market behaviours”, said ACAPMA CEO Mark McKenzie
“It’s essential that all businesses manage their businesses to avoid conduct of anti-competitive behaviours, as the consequence of any such breach are severe”, added Mark
The ACCC identifies anti-competitive behaviours as being “contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market”
The most obvious example of anti-competitive behaviour is Cartel-style behaviours – where businesses co-operate to rig prices, rig bids/tenders for products or services, or share markets by agreeing not to compete in discrete geographic markets.
At a practical level, this means that fuel retail businesses cannot engage in discussions about their pricing strategies with other market players and nor should they enter specific discussions about their costs and profits.
“This is an area where we have seen a significant increase in member inquiries because of the real-time fuel price reporting laws introduced in NSW, the Northern Territory and Queensland”, said Mark.
These laws don’t breach ACL as they are about making real-time information available to consumers so that they can make a choice between the offerings of fuel retailers in real-time.
“That is, there is a consumer advantage and this mechanism aids competition by increasing the visibility of pricing”, added Mark
While this means that fuel retailers can see the prices of other fuel retailers in real-time, and then match them, there is nothing illegal about such behaviour – as prices are highly visible to all.
Where retailers can get into trouble is where they meet at social gatherings or industry forums and discuss pricing, particularly future pricing intentions, as these are conversations that are not visible to all market participants.
“As such, fuel retailers are well advised not to enter into any conversation about pricing other than information that is of a general nature and accessible to all (e.g. ACCC reports or published price information such as that produced by the Australian Institute of Petroleum)”, said Mark.
Other types of anti-competitive conduct include exclusive dealings, collective bargaining and boycotts (except where approved by ACCC prior), imposing minimum resale prices (where the reseller has purchased the fuel, as opposed to agency agreements), refusal to supply products and services, misuse of market power, and unconscionable conduct.
“The last two areas mentioned, namely misuse of market power and unconscionable conduct (by one business to another), are also areas where ACAPMA has received increased inquiry of late”, said Mark
These behaviours are destructive to market competition but are also very difficult to prove, which is why our industry operates with the Oil Code of Conduct Regulation. This Regulation seek seeks to provide fuel resellers (and dealer businesses) with a series of competition safeguards when negotiating agreements with fuel marketers.
These last two issues are also understood to be the subject of considerable discussion by the Australian Parliament under the umbrella of hearings being conducted by a Joint Parliamentary Inquiry into the operation of the Franchise Code and Oil Code in Australia (The Inquiry is scheduled to hand down its report on 3 December 2018).
“It goes without saying that the above is a simple summary of the key elements of anti-competitive behaviour and all fuel retailers should ensure that they have a good understanding of the relevance of these behaviours”, concluded Mark
Further information about these behaviours, and the operation of Section 45 of the Australian Consumer and Competition Act (2010) – can be obtained via the ACCC’s website (see https://www.accc.gov.au/business/anti-competitive-behaviour) or by contacting your lawyer.