Anti competitive Practices And The Trade Practices Act - Newsletter Article 10/07/08
Overview
Earlier this year, eBay announced the proposed implementation of two major changes to its payment system which would affect both buyers and sellers using the auction website. Both of these changes related to the use of PayPal, an online payment system owned by eBay.
The first change, which came into force on 21 May 2008 , required all sellers on eBay to offer PayPal as one of their accepted payment methods. This change caused a substantial amount of controversy given that it was imposing a requirement on sellers which may not have suited their particular business needs.
The second proposed change was to require all Australian customers to either pay cash on delivery or use PayPal to make payments, thereby removing the option of payment to be made by direct debits, personal cheques or money orders as previously permitted.
Before eBay was able to implement this change, however, the Australian Competition & Consumer Commission (“ACCC”) intervened by requesting that eBay delay making any further changes to its payment system until the ACCC had sufficient time to investigate eBay’s proposal. The reason for the ACCC’s intervention was that eBay was effectively stopping buyers and sellers from having a wider choice of payment options when completing transactions. Of further concern was the fact that when buyers made a payment through PayPal, the seller would be required to pay PayPal a commission each time. The ACCC believed that this conduct may constitute ‘third-line forcing’.
Third-Line Forcing
Australia ’s economy is in many ways founded on the healthy competition that is created between businesses as a result of dealing in a capitalist market. It is this competition which ensures that prices for goods and services remain low while the quality remains high. Therefore it is important that this healthy competition is protected from businesses wishing to use their position in the market to dominate others, which would effectively result in the creation of monopolies.
The Trade Practices Act 1974 (“Act”) achieves this purpose to some extent by expressly prohibiting companies from engaging in anti-competitive conduct, of which there are several types. Relevantly companies are prohibited from engaging in third-line forcing, which occurs when one person trading with another imposes some restrictions on the other’s freedom to choose with whom, in what, or where they deal.
The concern of the ACCC in relation to eBay and PayPal was that eBay was proposing to restrict its customers from having a wider choice of payment options, thereby effectively forcing customers to use PayPal. Further, once an auction was completed, the seller would pay a commission to PayPal which would then ultimately benefit eBay, given that it owns PayPal. Such conduct would create a monopoly in favour of PayPal over online payments made through eBay.
Results of ACCC’s Investigations
After ACCC announced that it would be investigating eBay’s conduct to determine whether its proposals would amount to third-line forcing, it subsequently received over 800 submissions from interested parties regarding eBay’s proposal. However before the ACCC had finalised their investigations, eBay announced that it would withdraw the implementation of its proposed change and would not be challenging the ACCC on this matter. eBay has, however, confirmed that it will not remove the requirement for all sellers to accept PayPal as a payment option as introduced earlier this year.
Recommendations
You may have a company which supplies goods or services and you may believe that it is in your customers’ best interests that they obtain other goods and/or services from just the one supplier. Such a move may, for example, result in substantial financial savings for your customers and may generally promote competition in the marketplace.
Nevertheless, you should always ensure that your business does not breach any anti-competitive provisions of the Act, such as those relating to third-line forcing. If you have any concerns that your business may be engaging in anti-competitive conduct, even if you believe it is acting in the best interests of your customers, you should contact us so that we can review your businesses activities to ensure legal compliance.
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