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.
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.
Further information is available on the Public register.