Your firm is a wholesaler that supplies retailers over most of the metropolitan area of a capital city. In recent years you have expanded into the rapidly growing northern suburbs, with limited success. You find you have to be very
competitive in pricing to win business from a well-established local firm. You have, however, just secured two good accounts with retailers. You receive a phone call from the angry competitor, who says they are willing and
able to take you on in a price war and will target your existing retailers.
Business can sometimes be rough and tumble, and a threat to compete vigorously could be perfectly legal so long as a threatened price war is not an attempt to reach an agreement to stop discounting.
You ignore the call, but notice over the next few months that you lose some retailers to your competitor. You respond by cutting your margins and instructing your sales staff to ‘sharpen their pencils’. You are, however,
worried about the situation. Your competitor then calls you to discuss the matter. They suggest that the issue could be resolved if you back out of the northern suburbs; in return they will relinquish your previous clients. Then, they suggest, both of you could raise prices to what they were before the conflict and concentrate on ‘our own patches’.
Warning! What is being proposed is a market allocation scheme, and is illegal. At this stage you are not a party to the agreement, but if you ignore the incident it could be inferred that you tacitly agreed. You should seek legal advice and report the matter to the ACCC.
You reluctantly agree to back off, and then tell your sales team to leave the north alone. Over the next few months you raise your prices back to the original levels.
Danger! By agreeing, you have made a market allocation arrangement and breached the law. By pulling your sales staff off, you have put that agreement into effect and made a second breach. It might also be inferred that you have fixed prices. You should contact your lawyer and the ACCC immediately. If you are the first to inform the ACCC and you continue to cooperate, you may receive immunity from prosecution.
