Agreements to share markets may be, for example, by territory, type or size of customer. Such an agreement may lead to a substantial lessening of competition and may be prohibited under Section 17 of the Act. The agreement need not be explicit; discounts and other incentive structures that lead to market dis-aggregation would also be prohibited. If the agreement is found to be part of a cartel, then it is also prohibited under Section 35 of the Act.
There can be agreements, however, which have the effect of sharing the market to some degree but where that effect is no more than a consequence of the main object of the agreement. Parties may agree, for example, to specialize in the manufacture of certain products in a range, or of certain components of a product, in order to be able to produce in longer runs and therefore more efficiently. Such an agreement may be caught by the Section 17 prohibition if there is, or is likely to be, an appreciable effect on competition. If, however, there are technical efficiencies arising out of the agreement such that the criteria under Section 17(4) are met, the agreement will not be prohibited. There are, however, no exemptions for cartel agreements under Section 35.
Agreements between bidders for a job or commodities contract, to arrange the bids before they are submitted, or for some bidders to refrain from bidding would be considered as bid-rigging and are prohibited under Section 36 of the Act.
Any agreement that allows two or more potential competitors to share markets, fix prices, limit production or facilities for transporting, storing or dealing in goods and services constitutes a cartel (conspiracy) and is prohibited under Section 35 of the Act. In effect, a cartel is any arrangement that allows competitors to behave as if they were a single enterprise instead of competitors. Cartelization is considered one of the most serious offences under competition law.
Generally, the more information made publicly available to market participants, the more effective competition is likely to be. In the normal course of business, enterprises exchange information on a variety of matters legitimately and with no risk to the competitive process. Indeed, competition may benefit from the sharing of information, for example, on new technologies or market opportunities.
The exchange of information may however lead to a lessening of competition where it serves to remove any uncertainties in the market and therefore eliminate any competition between enterprises. In such cases, the exchange of information is prohibited under Section 17 of the Act. It does not matter that the information could have been obtained from other sources. Whether or not the information exchange substantially lessens competition will depend on the circumstances of each individual case: the market characteristics, the type of information and the way in which it is exchanged. As a general rule, information-sharing is more likely to have a significant effect on competition the smaller the number of enterprises operating in the market, the more frequent the exchange and the more current, sensitive and confidential the nature of the information that is exchanged. If the information exchange is part of a cartel agreement, it would also fall under Section 35 of the Act.
Market restriction refers to the practice by which a supplier, as a condition of supplying goods to a customer, requires that customer to supply these or any other goods, for example, in a prescribed market. This practice leads to a restriction of intra-brand (same brand) competition and may be prohibited under Section 17, Section 20 and Section 33 of the Act. An example of a situation in which market restriction may occur is where a supplier offers dealership contracts only in defined areas so that each dealer has control over particular areas and as such does not compete with other dealers. In effect each dealer acquires a monopoly status in its defined area.
Market restriction may, however, be permitted under Section 33 of the Act if it is found to be temporary and/or it is practised between interconnected companies.
An agreement between buyers to fix (directly or indirectly) the price that they are prepared to pay, or to purchase only through agreed arrangements, limits competition between them. An example of the type of agreement, which might be made between purchasers, is an agreement as to those with whom they will deal. Such an arrangement may be caught by Section 17 of the Act if it has or is likely to have the effect of substantially lessening competition.
The same issues potentially arise in agreements between sellers, in particular, where sellers agree to boycott certain customers. This type of agreement may have and lead to a substantial lessening of competition.
Misleading advertising refers to any false or misleading representation that is made to the public by a person in the course of business. The representation may be about the nature, character or performance of a product, such as size, type of contents or weight. It also includes warranties, statements, or guarantees that are not based on adequate and proper tests. Misleading advertising is prohibited under Section 37 of the Act, which requires that advertisements be clear and unambiguous.
All methods of making representations, including printed or broadcast advertisements, written or oral representations, audio-visual promotions and illustrations, are covered by the prohibition. The Act refers to representations made “to the public.” A representation to just one person can constitute a representation to the public. It should also be noted that it is not necessary to prove that any person was in fact misled; all that is required is that the representation is capable of misleading.
The Act proscribes “misleading in a material respect.” “Material” does not refer to the value of the product to the purchaser but, rather, the degree to which the purchaser is affected by the representation in deciding whether to purchase the product. A representation is considered to be material if it leads a person to a course of conduct that, on the basis of the representation, he or she believes to be advantageous.
A clear example of misleading advertising is an advertisement which describes a pair of shoes which was “Made in Taiwan” as “English Handmade”. Through the use of an expression associated with a long history of quality shoes, the merchant had made a misrepresentation as to the type of shoe that was being sold. Another example of misleading advertising occurs when a merchant makes a promise to a consumer to deliver an item in a certain number of days and does not fulfil this promise.
Failure to disclose information which is material to the consumer’s purchasing decision will also amount to misleading advertising. A merchant’s refund policy, for example, is deemed to be material information and therefore a merchant who fails to disclose his refund policy before a consumer makes his purchase is in breach of Section 37(1)(a) of the Act.
The FTC recommends therefore, that all merchants display their refund policy prominently in their business places. It is not enough that the said policy might be endorsed on the receipt that customer receives, because by the time the customer receives the receipt, the purchase would have already been completed.
A warranty is an undertaking given to a purchaser by a seller that a product is reliable and free from defects. The seller further undertakes that he will, without charge, repair or replace defective parts or replace the entire product if the product turns out to be defective within a given period. Certain specified conditions may have to be met before the warranty is enforceable.
Section 37 of the Act requires that merchants fulfil their warranty obligations. If a good does not come with a Written or Expressed Warranty, it is still covered by an Implied Warranty, unless the product is marked “as is” or the seller otherwise indicates in writing that no warranty is given.
One type of implied warranty is the “warranty as to merchantability”. This means that the seller promises that the product is of a quality that will allow it to perform satisfactorily. For example, it is implied that when a merchant sells a car, it will run satisfactorily. Another type of implied warranty is the “warranty as to fitness for a particular purpose”. This applies when a consumer buys a product on the seller’s advice that it is suitable for a particular use. For example, a person who suggests that a particular type of paint be bought for a driveway warrants that the paint is suitable for outdoor use. Implied warranties have no specific period of coverage. Instead, coverage is based on an estimation of a reasonable time for which the product should last, provided there is no misuse.
“Bait and Switch” occurs when a merchant advertises at a bargain price, goods or services which he does not supply in reasonable quantities. The merchant lures the customer into the store by offering a product at an attractive price (the bait). On arrival, the customer is told that the product is sold out and is encouraged to buy another product at a higher price (the switch). Section 40 of the Act prohibits this practice.
The Act requires that products that are advertised be immediately available for purchase. If, for any unforeseen reason, a merchant cannot supply the products advertised, he should offer the customer similar products at the same price and publish an advisory or retraction of the advertisement in the media.
Sale above advertised price is the practice by which a product is advertised at a certain price and sold at a higher price. Merchants advertise a product at a particular price with the hope that consumers, already in the store, will pay the higher price rather than go elsewhere. Sale above advertised price is prohibited under Sections 37 and 41 of the Act.