Tooltechnic Systems (Aust) Pty Ltd - Authorisation - A91433
Australian Competition and Consumer Commission
Authorisation (Resale Price Maintenance)
A91433
Notes
This represented the first ever resale price maintenance authorisation since authorisation became available for resale price maintenance conduct in 1995.
Tooltechnic had previously been found guilty and penalised for RPM conduct in the Federal Court.
Summary
From ACCC authorisation register
On 20 June 2014 Tooltechnic lodged an application seeking authorisation to amend its agreements with its Festool dealers to include a requirement for resellers to not sell any Festool product below a price(s) nominated by Tooltechnic (Proposed Arrangement). The implementation of the Proposed Arrangement will be the inclusion of a pricing clause in Tooltechnic's agreements with its dealers which will mandate dealers are not to sell any Festool product below a price(s) nominated by Tooltechnic.
On 21 October 2014 the ACCC issued a draft determination proposing to grant conditional authorisation in respect of the Proposed Arrangements for three years.
On 5 December 2014 the ACCC granted authorisation A91433 to Tooltechnic to set minimum retail prices on Festool products until 31 December 2018.
ACCC media release
ACCC, ‘ACCC authorises minimum retail prices on Festool power tools’ (5 December 2014)
The Australian Competition and Consumer Commission has granted conditional authorisation to Tooltechnic Systems (Aust) Pty Ltd (Tooltechnic) to set minimum retail prices on Festool power tools until 31 December 2018.
This is the first application for authorisation to set minimum retail prices, a practice known as resale price maintenance, under the Competition and Consumer Act 2010 (the Act).
Tooltechnic is the exclusive importer and wholesaler of Festool power tools, which are complex, highly differentiated products that often require a high level of both pre- and post-sales services.
“The ACCC considers that on balance the likely public benefit resulting from the expected increase in retail services will outweigh the clear, but limited, detriment resulting from some customers facing a higher retail price for Festool products,” ACCC Chairman Rod Sims said.
“Given the ACCC’s finely balanced assessment and that this is the first authorisation application for resale price maintenance, the ACCC has decided to grant authorisation for four years rather than the five years sought by Tooltechnic.”
The ACCC considers that this period provides sufficient time for Tooltechnic to implement its new arrangements, engage in resale price maintenance and demonstrate the extent to which the conduct has delivered public benefits.
The ACCC is imposing conditions on authorisation which require Tooltechnic to provide the ACCC with certain information (such as retail prices for Festool products before and after the authorisation) during the period of authorisation. This will allow the ACCC to monitor the impacts of resale price maintenance over that time and will inform consideration of any future application for re-authorisation by Tooltechnic.
The ACCC accepts that resale price maintenance can, in certain circumstances, address market failures, and thereby promote efficiency and generate benefits to the public. The ACCC’s assessment of efficiency-promoting resale price maintenance conduct will depend heavily on the circumstances of each case.
In this case, the ACCC accepts that there is a market failure caused by the free riding of some Festool retailers. Free riding occurs where some retailers can gain the benefit of, or free ride on, the services offered by other retailers. This creates a risk that retailers who do offer pre- and post-sales services will not achieve a sufficient return on the sales of their products to continue to provide these retail services.
Given the highly differentiated nature of Festool products, the ACCC considers that resale price maintenance is likely to limit free riding by encouraging Festool retailers to offer better services to attract customers. This will allow some customers to make more informed decisions in purchasing trade quality power tools and to continue to have the choice of a premium trade quality power tool accompanied by a high level of post-sales services.
The ACCC accepts that it is inherently difficult to determine the precise extent to which resale price maintenance will encourage a greater provision of pre- and post-sales services by retailers. However, the key issue here is the apparent incentives facing Tooltechnic. With only a very small share of the market, Tooltechnic needs to judge whether higher service levels will outweigh lower prices in attracting sales.
Authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Act. Broadly, the ACCC may grant an authorisation if it is satisfied that the conduct will be likely to result in such a public benefit that it should be allowed to take place.
[MR 299/14]
Further reading
Attribution/Copyright
ACCC extracts:
Attribution: ACCC, © Commonwealth of Australia. Licenced CC BY 3.0 AU