Market allocating: allocating customers, suppliers or territories
Dividing a market up with competitors and agreeing to only do business with particular customers or in particular geographical areas is known as 'market sharing'. It is illegal for competing businesses to reach an agreement that:
- allocates customers or suppliers in certain areas to particular businesses
- allocates particular customers or suppliers to particular businesses
- obliges parties to the agreement not to poach each other's established customers.
The three competing major suppliers of roller doors within a state get together and divide their market. Between them, one agrees to only service the northern region, the second will only service the eastern and western regions, and the third will only service the southern region. As a result of this agreement, potential customers only have one supplier of roller doors available to them – this is effectively a monopoly.
In the 1990s, numerous pharmaceutical companies entered into an international market sharing arrangement in respect of vitamin products manufactured and sold by them. Senior executives from the involved companies gathered at yearly meetings to determine a “budget”, which essentially predicted the future demand for vitamins in regional areas for the following year. The executives then allocated market shares and volume of sales for the Australian market and elsewhere between the companies. This amounted to market allocation and was viewed as contravening the CCA. The Federal Court imposed penalties of $26 million against the Australian suppliers.