Proposal to set minimum advertised prices on power tools raises ACCC concerns

By Thomas Jones, Jeff Tian

07-2020

Recently, the Australian Competition and Consumer Commission (“ACCC”) issued a final notice to reject Stanley Black & Decker's (“SBD”) proposal to set a minimum advertised price for its DEWALT products (“Alleged Behaviour”).

SBD is a US company that imports and wholesales a wide range of tools, and related accessories such as power tools, hand tools, and automotive tools. SBD distributes DEWALT products through a few distributors and dealers across Australia.

RPM in Australia

Resale Price Maintenance ("RPM") is where a supplier enforces measures to prevent businesses reselling its products below a certain price.  In Australia, RPM is prohibited outright, regardless of whether it has the purpose, effect, or likely effect of substantially lessening competition.

The Australian Competition and Consumer Act 2010 ("Act") permits a business to apply for protection from sanctions for RPM by lodging a notification describing the conduct or obtaining an authorisation for the conduct.

In general, the ACCC only grants an authorisation if the proposed conduct's public benefits outweigh its public detriments. To assess the public benefit, the ACCC routinely applies the “future with or without the proposed RPM conduct” test. 

SBD’s Proposal

SBD argued that it was necessary to implement the Alleged Behaviour because it would allow distributors to receive a higher margin and therefore be more inclined to invest more in customer service and stock wider range of DEWALT products.

In SBD’s application, it proposed to amend its dealer agreements to include a requirement that dealers not advertise the DEWALT products below a specified recommended price.

ACCC’s Response

The ACCC has only ever granted one (conditional) authorisation for RPM. That was to Tooltechnic Systems in 2014. Like SBD, Tooltechnic had similar incentives to set a minimum price.

Based on the Tooltechnic decision, the ACCC considers the following factors to determine whether an authorisation shall be granted:

  • whether a proposed product is a complex one with various different attributes and requiring high levels of customer service;a more complex product requires more guidance from the staff to demonstrate its operation and characteristics.
  • whether the Alleged Conduct is required to assist customers in making informed decisions about the proposed product(s); it is a public benefit if a customer can gain additional information from the demonstrations.
  • whether the supplier's market share is small enough; in general, it will be easier to obtain authorisation if the supplier has smaller market share in the market.

As to DEWALT products’ complexity, the ACCC recognised that some of DEWALT products are more complex as compared to other similar products in the market. However, the overall complexity of SBD’s DEWALT products was not high enough. In other words, there was no distinct attribute of DEWALT products as compared to other similar ones in the market.

During the ACCC’s investigation, it discovered that most non-loyal customers purchased power tools purely based on the price of the product. There are many brands and models of power tools available to Australian consumers, both online and in store. These brands held regular live online and offline demonstrations about their products. In that context SBD’s similar demonstrations did not add extra value to customers.

SBD’s application states that it is the third largest power tool supplier in the Australian market. The ACCC had two concerns if SBD’s Alleged Behaviour were to be approved. First, as SBD has a relatively large market share compared to Tooltechnic it may influence other power tool manufactures and dealers to increase the price simultaneously and earn extra profits from the customers. Second, SBD has many loyal customers due to its market share. it would be a significant  cost for these loyal customers who have already invested in DEWALT’s battery system to switch brands.

Conclusion

From this decision, the ACCC is still wary of the potential anti-competitive effects of RPM.  This decision makes it perfectly clear that, even during the COVID-19 pandemic, the ACCC is cautious about authorising RPM and will treat any application with a high level of scepticism.