Price fixing not allowed in any franchise

Zodwa Ntuli, the commission's compliance division manager, said this week that the Competition Act clearly stated that "the practice of minimum resale price maintenance is prohibited" irrespective of whether or not it occurred within a franchise arrangement . However, Ntuli said a supplier or producer might recommend a minimum resale price to a reseller, "provided that such producer or supplier makes it clear to the reseller that the recommendation is not binding".

Business Report
May 12, 2004

Price fixing not allowed in any franchise
Ronnie Morris

Pretoria - Any franchise business, including vehicle dealerships and fast-food outlets, would be guilty of contravening the Competition Act if it prescribed minimum retail prices for the products sold by the franchisees, the competition commission has confirmed.

Zodwa Ntuli, the commission's compliance division manager, said this week that the Competition Act clearly stated that "the practice of minimum resale price maintenance is prohibited" irrespective of whether or not it occurred within a franchise arrangement .

However, Ntuli said a supplier or producer might recommend a minimum resale price to a reseller, "provided that such producer or supplier makes it clear to the reseller that the recommendation is not binding".

Suppliers or producers were not allowed to impose the minimum price on the reseller.

"For as long as the relationship between the parties is vertical, which means they operate in different levels of the supply chain, minimum resale price maintenance is not allowed."

The debate over minimum resale price maintenance has been fuelled by the competition commission last week launching an investigation into car prices remaining persistently high despite the strengthening of the rand, and Toyota South Africa agreeing to pay an administrative penalty of R12 million and discontinue the practice of minimum resale price maintenance, in terms of a consent agreement reached with the commission.

Toyota SA admitted that for "a limited period in late 2002" during the launch of the new Corolla, it had prescribed maximum discounts to protect the viability of its dealer network.

Brand Pretorius, the chairman of McCarthy Motor Holdings, has emphasised that dealers did not determine retail or list prices; they operated within the franchise system where list prices were prescribed by its suppliers. Although list prices were the same, the actual transaction price would vary because of the trading mentality of dealers, he said.

Nic Louw, the executive director of the Franchise Association of SA (Fasa), said vehicle dealerships were not members of the organisation.

Fasa members acknowledged that they could not fix prices because it was against the Competition Act. However, franchise owners gave franchisees "some guidance" on the pricing of items. In terms of Fasa's code of ethics, its members had to comply with the laws of the country.


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Risks: Competition rulings, Franchisor controls retail prices, Mask of respectability, Price maintenance, Trade association propaganda, Price fixing, South Africa, 20040512 Price fixing

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