Monday 15 June 2015

Economics: Flight Centre and Visy and Amcor

1.0 MARKET STRUCTURES: 
In the world of economists, there are a range of different market structures. These structures include: Monopolies, in which there is only one producer/ seller for a product. Gaining entry in such a market is restricted due to the high costs associated in the entry. An example of a Monopoly market place is in Saudi Arabia where the government has full control and rights over the oil industry. (Investopedia)

The Oligopoly market place is structured in such a way where there only few firms in a particular industry. The few firms in that industry have full control over the price and like a Monopoly marketplace; Oligopolies have high barriers to enter the market place. (Investopedia)

Perfect competition, is when there are many buyers and sellers and when there are many products and services. Due to the many sellers, there are many substitutes in the market. In a perfect competition marketplace, there are very few barriers of entry and the price is determined by the consumers and no one can affect the market. (Investopedia)

Monopolistic Competition market places include many firms that produce similar but not perfectly substitutable products. (Investopedia) Each of the firms make an independent decision on pricing and there are very few barriers of entry and exit. (Economics Online)


2.0 ANTI- COMPETITIVE ACTS:
Anti- competitive practises include ways that limit or prevent competition in the market place. This is against the law! (ACCC) 

Common anti- competitive practises include: dumping- company sells a product in a competitive market at a loss, exclusive dealing- a retailer or wholesaler is obliged by contract to only purchase from contracted suppliers, price fixing- companies collude prices, refusal to deal- two companies agree not to use a certain supplier and dividing territories- agreement by two companies to stay out of each other’s way. Criminal penalties of such acts can be up to $220, 000 per offence and or up to 10 years of imprisonment.  (Australian Government)


3.0 ACCC:
The ACCC is Australia’s competition regulator and national consumer law champion. They mainly promote market competition and fair trading. (ACCC) It was formed in 1995 to administer the Trade Practises Act 1974 and Consumer Act 2010. 

The ACCC’s primary role is to educate both consumers and businesses as to their rights and responsibilities in these acts. As well as to improve market conduct, use resources efficiently and effectively enhance competition in our regulatory activities. (Scam Watch) 


4.0 FLIGHT CENTRE: 
On the 28th of March, 2014. Flight Centre was ordered to pay penalties of a whopping $11 million for infringing the Trade Practises Act on six occasions between 2006 and 2010. (ACCC)

 The company attempted to enter anti- competitive arrangements with three international airlines: Malaysian Airlines, Singapore Airlines and Emirates. Flight Centre wanted to eliminate differences in the air fare by attempting to induce the above airlines to enter into a price fixing arrangement. More specifically, Flight Centre wanted to stop these three major airlines from offering and booking their own fares at prices less than what Flight Centre offered. (Bainbridge A, 2013) 

Between 2005 and 2009, representatives of Flight Centre sent multiple emails to the three airlines to induce the airlines to begin price fixing. Flight Centre did not dispute that the alleged emails has been sent to the different airlines but had a very different idea of how it should have been interpreted. They claim that the communication was in the context of a principal- agent relationship in which Flight Centre was the agent and was trying to gain assurance that they were being given access to the same air travel service as other travel agencies. (ACCC) 

The Flight Centre price fixing scandal was so the company could obtain the benefit of prices greater than those which would be obtained in a competitive market and be able to state that they are the cheapest in the air fare market place. (ACCC)


5.0 VISY AND AMCOR:
Another example of the illegal act of price fixing was committed by Visy and Amcor, the cardboard box giants. (Sydney Morning Herald, 2011)

Between the two companies, Visy and Amcor had control over around 90% of the corrugated fibre packaging market segment. This segment was worth between $1.8- 2 billion per year. In the span of 2000- 2004, the two companies joined forces to raise prices of their products while also maintaining their particular market shares. (ACCC) 

The two companies consulted with each other to coordinate frequent price rises and customer quotes. (Main A, 2011) If a customer were to receive quotes from the other company, they would swap information regarding that particular transaction to ensure that the competitors quote was higher than the other. (ACCC)

 The ACCC was seeking declarations, injuctions, pecuniary penalties, orders relating to trade practises training or compliance programs and costs from Visy and Amcor. (ACCC) 

Both Visy and Amcor reached a $95 million settlement in a class action against their price fixing scandal. Amcor will pay two thirds of the settlements and Visy will pay one third. (Mallesons, 2006) The cartel went on for almost five years and had it not been formally reported, would have still been active. (ACCC)


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