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W1: Introduction to Business Decision-Making

Importance of Stakeholders
- STAKEHOLDER: anyone who has an impact
on business decisions or is impacted by
business decisions
o Organisational stakeholders: managers,
employees and investors responsible for
governing organisation
o Market stakeholders: customers,
suppliers and competitors
o Societal stakeholders: community
groups, government, physical
environment, those who represent
interest of physical environment, non-governmental organisations
- CORE STAKEHOLDERS (Matten and Moon, 2020):
o Shareholders/owners
o Employees
o Customers
o Suppliers
o Local communities
o Societies
o Regulators

Normative and Instrumental factors

- Normative
o How one “ought to behave”
o Ethical and moral principles
- Instrumental
o How one “needs to behave”
o Time and money considerations
Cost-benefit principle
 Costs and benefits are incentives which shape decisiosn
 Before any decision:
o Evaluate full set of costs and benefits associated with choice
o Pursue that choice, if benefits are at least as large as costs
(benefits>costs)
 Economists consider the willingness to pay i.e. the maximum cost
willing to pay
 Money is a means of measurement which allows one to compare
wide variety of costs and benefits
o Both financial and nonfinancial aspects of decision
 Buyers and sellers benefit from voluntary exchange
o Ensures all transactions will yield economic surplus

Opportunity Cost
 Consequences of choice relative to best of alternatives
 Focus on real trade-offs to make better decisions
 Allocate scarce money, attention and resources

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 Compare consequences of choice with consequences of next best

alternative

Comparative Advantage
 True cost of something is what you must give up getting it

W2: Decision making in markets

Perfectly competitive markets
Characteristics (assumptions):
 Consumers and suppliers are price-takers
o The price-taker assumption corresponds to a market with many, many "small"
buyers and sellers
 Homogenous goods
o Pink lady apples, crude oil
 No externalities
o Production or consumption of good creates a cost or benefit to someone
external to the market participant
 Goods are excludable and rival
o Excludable- prevent consumers from consuming the good
o Rival- becomes unavailable after being used
 Full information
o Perfectly informed by the characteristics and price of the good
 Free entry and exit
o New suppliers can enter and existing can leave
o Does not include patents

Consumer demand
Marginal principle
 decisions about quantities are best made incrementally
o Evaluate whether extra benefit from hiring one
more worker exceeds extra cost of that extra
worker

 Break down decisions about how many of something

into a series of smaller or marginal decisions
 Decisions about quantities become "either/or"
decisions
 When the extra benefit of doing something exceeds
the extra cost
 Using rational rule to maximise your economic surplus
 Crossing point of marginal cost and marginal benefit occurs right when marginal
benefit is equal to marginal cost

Demand Elasticity
 Elasticity is on a continuum, from 0 (perfectly inelastic) to negative infinity (perfectly
elastic)
 Demand is likely to be relatively inelastic- going without a textbook that is required for
the coursework or changing study plans is quite costly

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Supply Elasticity
 Supply is likely to be relatively elastic- there is no production involved so no delays/lags
in scaling up or down supply

W3: Corporate responsibility

Corporate Responsibility
 Involves corporations becoming more informed
and enlightened members of society
 Able to articulate their role, scope and purpose
as well as understand full social and
environmental impacts and responsibilities

Forms of Duty/Responsibility
1. Duty to respond to situations or conditions to which a company’s actions have
contributed (e.g. dangerous working conditions, environmental damage)
2. Duty when an organisation benefits from but does not cause, conditions which are
unjust or harmful (e.g. child labour and modern slavery in unregulated economies –
Adidas moves to counteract this)
3. Duty of ‘beneficence’ – to aid others when in a position to do so, even if the organisation
is not directly responsible for the

UN Global Compact

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Business Decisions (CR perspective)

Market Power and Impact

HumW4: Consumer Relations Decisions

Who are consumer
 Buyers of any product or service
 An integral part of every business

Consumer- related business decisions

 The products or services we provide and who we provide those
products to
 Individuals depend on businesses to provide products or services
that they cannot create or acquire themselves
 Businesses can decide which of aspects of value chain to be
involved in with the idea that they are offering some product or
service to consumers

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 The price- some businesses have capacity to adjust prices whereas

others must follow the market price
 Who to serve- try to serve all possible consumers or only a subset of
the population
 Those with a digital presence now make decisions about how they
capture value from consumers
o E.g. collect data from some types of consumers and use that
to sell to other businesses

Economic considerations in relations with consumers

 Important set of instrumental considerations in relation to
consumers
 What to produce
o Questions of what and how much to produce depend a lot on
costs of making product or providing service - incl all
opportunity costs
o Consider other opportunities that would yield more benefits of
employees and other internal stakeholders
o Must consider both fixed and marginal costs
o Marginal costs relevant to decision of how much to produce
while fixed costs involved in building a plant, training
employees or conducting research, determine whether it is
worthwhile to operate in market at all
 Business must be able to earn enough revenue by
charging high enough price and selling a sufficient
quantity
 recoup initial cost of investment and ongoing fixed costs
o Determine what and how much of your products or services
are available to consumers
 What price to charge
o Consumers typically buyers of products or services - directly
affected by prices
o Perfectly competitive firms have no control over market price
BUT most businesses have some market power
o Any business with the ability to set prices will be keen in price
elasticity of demand for its product - determine how much it
can raise its price without large percentage of customers
o Elasticity depends on number of close substitutes for its
product available to consumers and amount of competition in
the industry
 Whom to sell to
o Market demand and level of competition are key determinant
of what market you should operate in , amount you produce
and price you charge --> who buys product
 Price discrimination
o One more consideration in relation to consumers ignored until
now
o Assumed that business must set one price and sell to all
consumers at that price

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o Countless examples of strategies they use to charge different

prices for same or similar products to different consumers =
PRICE DISCRIMINATION
 Perfect Price Discrimination

o Design a menu of products and prices so that

high demand and low demand consumers have various options
 first class, business class, economy
 Pink tax= charging more for women's version of products because they
are considered less price sensitive
o Price discrimination is good for the bottom line if the firm decides to do it
 Includes more price sensitive markets
o Price discrimination is bad in an equity perspective because it directs the
surplus to the firm itself

Normative considerations in relations with consumers

 Equally important when addressing relations with consumers
 Business can hurt or harm a consumer and these factors be
considered when making business decisions
 Making products or services
o Side effects that can harm the consumer that they are
unaware of
 Pricing and availability- consider whether we are dicsciminating
against them because of background, their bargaining position or
because of income
 Same price for same product may be fair to some but not fair to
others
 While it is important to follow consumer protection laws, being
responsible to consumers may often mean going above and beyond
the law.

Consumer Surplus Producer Surplus Economic Surplus

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On a unit: difference Difference between The sum of the consumer and

between reservation price paid and producer surplus
price and price paid (ie reservation price (ie how
the difference between much what the firm was
price you are willing to paid exceeded what
pay and price that was they were willing to
paid)

 Marginal benefit= consumer

reservation price
 Marginal cost = producer
reservation price
 THEREFORE, Economic
accept surplus measures the
difference between marginal
benefit and marginal cost
(thus the benefit to society of
that unit being produced and
the cost to society of that
unit being produced
 Maximise economic surplus:
MB > MC
o Therefore, on a normal
curve- all units from
zero to market
equilibrium quantity
adds to the economic
surplus
 Neutral to the distribution of
surplus

Producer Surplus
 Difference between price paid and reservation price (ie how much
what the firm was paid exceeded what they were willing to accept

W5: Employee and Supplier Relations Decisions

Stakeholders: Suppliers
 Workers
 Firms which sell firm intermediate goods/services
Business Inputs
 Types:
o Real property (real estate)
o Goods
o Services of humans (labour)
o Intangible rights and permissions (e.g. contractual rights,
government licences)
 Stakeholder analysis raises three analytical tools

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o Incorporation and balancing of CR, economic and legal

considerations
 Labour
o Major input (and therefore major cost)
o Bigger input for services businesses
o Areas of the law make distinction between:
 Employment relationship
 Independent contractor relationship
o Major direct cost
 Superannuation guarantee system: about to be 10%
employer contributions to employee’s retirement fund
 Payroll tax: State tax on amount of employers “wages
bill”
 Workers’ compensation levy (insurance): State based
liability
 Minimum wage laws
 Leave entitlements: annual leave, sick leave, long
service leave
o Indirect cost areas
 Work, health and safety laws
 [Vicarious] Liability on employer for negligence of
employee
 Unfair dismissal laws (procedures)
 Income tax collection and reporting under PAYG regime
o A trend in “outsource” labour  usually more cost effective to
secure labour through independent
contractors
 Market Power
o Perfectly competitive input markets = both
sellers and buyers are price-takers
o Labour supply facing firm is perfectly elastic-
can hire however many workers it wants at
market wage
o Other firms have market power in labour
market – set own wages
 Upward sloping supply curve
o Extreme example is monopsony (only one
hiring firm)
 Marginal cost of next
worker is more than
wage it was already
paying other workers
 True for any firm with
market power

Economic Considerations
 Labour Demand
 Labour Supply

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 Hold up problem

W7: Competitor Relations

Collaboration
 Firms regularly collaborate with other firms
 “Collaboration” between competitors can be a good thing for consumers…
o Solve problems of (consumers’) incomplete information (e.g. organic
certification)
 Competitors engage in collaborative research and development or collaborative
marketing
 Competitors form industry associations and lobby on each other’s behalf

Collusion
 Deceitful agreement or secret cooperation between two or more parties to limit open
competition by deceiving, misleading or defrauding others of their legal right.
 Sustain Collusion by:
o Have a punishment/reward strategy in place
o Price-matching policies
o Anti-competitive law
 Whistle-blower laws to incentivise “cheating” on a cartel by giving the
“confessor” privileges like immunity from prosecution

Economic considerations
 Perfectly competitive market
o Business has many competitors and strong competition
o Thus, must charge the prevailing market price
 Monopoly and monopolistically competitive market
o Business faces no direct c competitors
o BUT still take into account demand is limited by presence of substitutes for its
products
 Oligopoly market
o Decisions related to competitors are more complex than the above two
o Few large suppliers in market means that both the business’ and competitors’
decisions affect each other accordingly
o Here GAME THEORY becomes relevant
 Game Theory
o Science of making good decisions in situations when one party’s best choice
may depend on what others choose and vice versa
o Strategic interactions: When one player’s best choice may depend
on what others choose, and their best choice may depend on what the
player chooses.
o Payoff matrix: A table that lists one player’s choices in each row, the
other player’s choices in each column, and so shows all possible
outcomes, listing the payoffs in each cell.
o Best response: The choice
that yields the highest payoff
for a player given the other
player’s choice.
o Nash equilibrium: An
equilibrium in which the

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choice that each player makes is a best response to the choices other
players are making.
o Prisoner’s dilemma: A type of game in which the players fail to
cooperate even though cooperation would make them all better off.
o Coordination game: A type of game in which all players have a
common interest in coordinating their choices

Dual Concern Theory

 Framework on interaction that centres on two
potential concerns that each party has when
they are interacting with the other

W8: Decision interactions with

government and societal goals
Business Decision Making and the Law
 Government intervention is where the
government makes rules which apply to or impact on people and
business entities in society and marketplace though institutions and
their power
 Political considerations often play a part in decisions to intervene or
not intervene
o Australia’s generous and extensive social welfare system
which provides a basic level of income support to those
without their own sources of income.
o Requires sufficient taxation revenue to be raised by gov.
 Australian Consumer Law (ACL)
o Requires sellers of goods and services meet a certain standard
of quality and are fit for purchaser’s use
 Laws conferring a monopoly in use of, or the commercial
exploitation of, intellectual property rights on those that created the
rights and/or invested money in creating them
 Constitution:
o (i) trade and commerce among the states
o (ii) taxation
o (iii) banking
o (iv) copyrights, patents of inventions and designs and
trademarks
o (v) foreign corporations, and trading or financial corporations
formed within the Commonwealth and
o (vi) provision of invalid and old-age pensions, widows’
pensions, unemployment benefits, sickness benefits, benefits
to students and family allowances
 ACL is in part built on referral of state power
 There are various drivers: in very broad terms, they can include:
o (i) provide income support payments to those without much private income (or
redistribute income/wealth) (e.g. COVID-19 assistance)
o (ii) provide in-kind social benefits or social programs (e.g. medicare system,
NDIS, child-care subsidies)

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o (iii) public goods

o (iv) merit goods, and
o (v) cost of operating the govt (e.g. regulatory agencies)
 Politics: political pressure can often help shape or decide the question whether a
particular new item of expenditure enters the spending side of the budget
 While not directly relevant to business decision making, this can indirectly impact
business because the business sector pays taxes
 Corporate Responsibility (CR) angle: in short, there is a lot of CR type scrutiny on
larger companies, especially multinationals, and their tax payment history and their
approach to taxes generally
o Criticisms: many are valid (some companies take very aggressive positions on
the tax law), and some are not
o “Small end of town”: more scrutiny could be directed here as well
o Compliance costs of taxes: this is a big issue for businesses. This is a cost of
complying with the tax law, and often, it is a cost of collecting tax payable by
another person (e.g. PAYGW for employees, payments to contractors). Also
making payment reports to the regulatory agency (Australian Taxation Office)
 Subsidies are part of the expenditure side of a govt’s budget, just like the vast array of
other govt expenditures
o A subsidy is a payment by the govt to a private citizen or business entity to
assist or support the pursuit of an enterprise or activity. The term is usually
contained to receipt by a business (JobKeeper is a bit difficult to characterise)
o A subsidy effectively lowers the cost of the relevant activity
o As a mater of logic, one would think the same distortive effect issues that arise
for a tax, can also arise for a subsidy

Economic Considerations

W9: Stakeholder Decisions Regarding Managers

 Other stakeholders are less likely to have their own power in the decision-making
process in comparison to managers of businesses
 Monopoly setting prices- consumers do not have any power to purchase alternative
products
 Stakeholder activism

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o stakeholders must create new sources of power when government does not
provide sufficient support
o Members of stakeholder groups engage in collective action to protect rights
and advance their interests
o Often involves appealing to other stakeholders who can offer additional
leverage, such as the media
 Consumers can form consumer groups and participate in a class
action lawsuit. They may also turn to social media to raise
awareness of the issue, and, in some cases, organise a boycott.
 Employees can form trade unions and labour associations that
can bargain on all employees’ behalf.
 Suppliers can form industry associations or collectives that pool
their bargaining power.
 Members of local communities can form civil society
organisations that monitor and respond to corporate activity.

Civil Society Activism

 Civil society organisations form to provide activism on behalf of stakeholders who are
too marginalised or lack agency to organise themselves
 E.g. Duty of Vigilance Law (2017) in France
o mandates that large French firms1 reduce human rights and environmental
risks in their global production networks. “Companies are required to develop
and implement a ‘vigilance plan’, comprising:
 a risk map (which identifies, analyses, and prioritises risks relating to
their subsidiaries, subcontractors, and suppliers);
 procedures to regularly assess risks; appropriate actions to mitigate
risks;
 an alert mechanism (co-developed with union representatives);
 monitoring and evaluation mechanisms.

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W10: Complexity in Business Decision Making

Uncovering contradictions
 Contradictions are inherent in complex business decisions
 Pros and Cons are considered, however may be contradictory due to differing sources
of information or different areas of consideration can lead to different answers
 Uncovering contradictions, acknowledging the complexity of the decision and
compelling creative solutions
 Making decisions that address both profitability and environmental sustainability
goals forces businesses to seek solutions
 Look at every stakeholder perspective and every normative and instrumental
consideration of the decision:
o Contradictory impacts on stakeholders: For example, we have seen how
decisions with a positive impact on shareholders and employees (e.g.,
recouping R&D costs) may have a negative impact on consumers (e.g., price
of goods). When making the decision of which price to set, what is positive for
one stakeholder may be negative to the other.
o Contradictory normative considerations: For example, when making a
decision about whether to open a factory in a new community, there may be a
positive impact on the community in terms of jobs and a negative impact on
the community in terms of health.
o Contradictions between normative and instrumental considerations: For
example, a decision that can be deciphered as responsible may also be
deciphered as illegal or economically unviable. For example, as discussed in
the case of food delivery service, some aspects of compensating drivers fairly
may, in fact, confront legal issues and issues of economic viability.

Making decisions with contradictions

 Maximise surplus across stakeholders
o Attempt to quantify the relative surplus that a decision brings to each of the
stakeholders
 Calculate the benefits for each stakeholder and subtract costs
 Weigh each stakeholder
 Assess whether net benefit is greater or lesser than the net cost
 Think about the decisions as if it was a dilemma
o Multiple decisions have equal weight, and no decision appears any better than
another
o E.g. see decision to open a factory or refrain from opening a factory as equally
beneficial
 Think about decision as if it was a paradox
o Multiple choices that are less obvious to the decision-maker
o Contradictory elements that are interrelated (Keller & Sadler-Smith, 2019)
o Cannot resolve contradiction- e.g. contradiction between the economic and
health welfare of a community, we cannot find a solution that provides the
optimal outcome for both, as many of the benefits of both are intangible,
difficult to quantify and interrelated
o Must focus on “both/and” solutions- looking for areas of synergy while
recognising both are important and remain contradictory

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o Strive to ensure that a decision must simultaneously be both profitable and

sustainable, even if profitability undermines sustainability and vice versa
o Leads to creative, innovative and sustainable decisions

Making decisions in practice: the role of changing

 Must process information from what is available, construct the decisions with use of
limited information available to make decision
 Lack of complete information makes it particularly difficult when the context changes
o Competitors enter market, employees form a union, law change, stakeholders
organise around an issue
 As context changes, new decisions, answers and approaches must be considered
 Understand the context and how it can change
o Pay attention to economic and legal conditions
o See ongoing trends and possible changes
o Ongoing stakeholder demands may lead to legal changes which can turn
normative considerations into instrumental considerations
 Consider uncertainty
o May not be able to know what changes lie ahead
o Must recognise that there is uncertainty in outcomes of our decisions
o Can model uncertainty or in other circumstances must include contingencies
into our decisions consider cognitive biases and complexity of working with
others to make a decisions

Making decisions

 Heterogeneity
o Global environment – environments vary across geographic locations
o Must consider variance between locations within a decision, such as when the
price of product is higher in one country than in another
o First understand why there is variance and its impact on organisations
 Change
o Environments undergo change
o May be linear change, such as growth in population
o There may be punctuated change – shock to economic system
o Outcomes of decisions occur after decisions are made, changes in environment
are consequential for decision-makers

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o To understand how change shapes the decision process, must first understand
sources of change and factors which contribute to change’s size, scope, and
shape

 Multiple Levels
o Environmental impacts on organisation can occur only within the
neighbourhood, across a city, state or province, country, region, globe
o Each level of analysis has its own set of factors that can contribute to an
organisation’s environment and thus each level of analysis requires attention
of business decision-makers
 Multiple Lenses
o Multiple lenses used to interpret the environment and to make inferences
based on what we know about the environment
o Includes a cultural lens, economic lens, legal lens, environmental
sustainability lens
o Reveals different aspects of environment and thus can shape the decision-
making process in different ways
 Interplay between environmental factors
o Makes global environment especially complex, may be look complex
interplays between the various factors
o For example, look at technological change associated with the Internet – a
more homogenous world looking through an economic lens and more
heterogeneous world looking through cultural lens
o See growing homogeneity within countries which speak different languages
o To understand complexities of global environment- look at relationship
between all 5 above components

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Economic Concepts
Opportunity Cost

Comparative Advantage
- Comparative advantage when the OC is lower than the other

Absolute Advantage
- More productive at a certain task given same inputs (means of
conducting the task, ie. Equipment, labour force)

Supply and Demand

Demand Curve
 Sloped downward
 Decreasing the price of the product means producers have extra income to produce
more of the same product
 Ie as price-> down, quantity-> up

Supply Curve
 Sloped upward
 At higher prices, the quantity output also increases
 Ie as price-> up, quantity->up

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Market Equilibrium

Shortage
 When supply is lower in quantity than demand at same price point

Surplus
 When supply is higher in quantity than demand at the same price point

Price Elasticity of Demand

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Legal Concepts
Contract Law
 Twin ideas (premises) adopted as underlying contract law in that previous
age:
o (i) freedom of contract
 suggests parties have [at least some] autonomy in such
things as: (i) whether to enter a particular transaction (ii) who
to transact with (iii) the terms of the transaction, etc
o (ii) equal bargaining power of the parties
 However, twin ideas is discarded more in B2C (business to consumer)
o ACL (governs B2C) v Sale of Goods legislation (governs B2B)
 Protections and enforcement of protections for purchasers of
goods are stronger under ACL compared to under sale of
goods legislation
 Unconscionable transactions- one party has stronger
bargaining position than other (could take ‘special
disadvantage’)
 Stronger party takes unfair advantage of other (Amadio case
1983)
 (i) Objective theory of contract: intention of the parties, is a big thing
in contract law; it arises in contract formation, and it arises in the content
(terms) of the contract
o The idea is that when determining intention of the parties, their
subjective intention (state of mind) is not relevant
o Instead, it is the intention of a reasonable person in the position of
the parties (party) that matters
o Therefore, caution needs to be exercised when negotiating and
settling on terms of an agreement
o Objective theory tends to avoid protracted disputes of the kind, she
said this, she said this  Arguably, this provides more certainty
 (ii) bias towards contractual obligations being performed: this
comes through mainly in two or three areas
o First, when a party breaches a contract, the innocent party has
remedies, and the usual one is damages (compensation in money
from wrongdoing party)
o When deciding on the amount of damages, the courts will work on
the basis that the contract was performed
o This sends a strong (and clear) message to the business sector
(commercial sector) that agreements need to be fulfilled
(performed) and cannot be readily broken (walk away from)
 Right to terminate contract (innocent party) is only available for breach
(by wrongdoing party) of more important term(s) of contract
o Breach of a less important term (ie warranty) does not give right ot
terminate contract
 Courts imply terms in contracts that:
o (a) parties have duty to co-operate in performance of agreement
o (b) parties have a duty to act honestly and reasonably (good faith)
when exercising a contractual power
 Some examples where the law has intervened to (try to) address some
imperfections:

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o full information: consumers do not have the same information as

the product supplier - ACL imposes obligations on product suppliers
that goods are of merchantable quality and fit for the customer’s
purpose
o suppliers are price takers: not necessarily the case where one or
small number of suppliers - competition law does not allow suppliers
to “nod and wink to each other” re setting prices
o power imbalance in B2C transactions: exclusion of liability clauses
in contracts - courts interpret these strictly

Legal Structure Decision

Choice of legal structure through which to operate business
 Various options, and legal basis of options: (i) legislation (ii) case law
(iii) mixture of legislation and case law
 Options, along with brief coverage of main features:
o Sole trader (sole proprietor): (i) very common form of business
structure (especially small businesses) (ii) no separate legal person
from business operator (ii) unlimited liability for debts, liabilities, etc
o Partnership: (i) definition: two or more persons carrying on a
business in common to make profit (ii) effectively, collection of sole
traders (iii) partners are agents for each other (iv) all partners have
unlimited liability for debts and liabilities of the p/ship (v) limit on
size (i.e. 20) with some exceptions
o Limited partnership: one partner has limited liability and others
do not
 Discretionary trust: (i) not a separate legal entity; just a relationship (ii)
“normal” trust; legal ownership is split from beneficial ownership (iii)
trustee is legal owner (iv) beneficial ownership is suspended and largely
depends on trustee’s discretion (v) generally, limited liability can be
achieved
 Fixed trust (which can include a unit trust): (i) normal trust (ii)
interests of beneficiaries are fixed (iii) generally, limited liability can be
achieved
 Company: (i) separate legal entity (company is a legal person) from
shareholders (ii) in company limited by shares (most common company),
shareholders liability is capped to paid up value of shares (can be $1 for a
share in a company) (iii) well understood in commercial world
 Sample of factors (and their meaning) that are relevant:
o Limiting liability if losses are made (business fails):
o “Asset protection”
o Minimising taxation (or maximising tax position)
o Accessing finance to start-up, or for expansion (which can include
ease of introducing new investors)
o Acceptance to all founders
o Founders maintain control
o Acceptable to stakeholders: e.g. suppliers
o Whether required to report financial results to external parties
o Ease of passing of interest (ownership) on death
 What seem to be the key factors businesspeople (and their business
advisors) take into account?
o Limiting liability (and asset protection)

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o Minimising taxation
 Expand on these (a bit); mainly the first one
o Limiting liability (and asset protection)
o Minimising taxation

Consumer Protection and Intellectual Property Law

 Consumer protection
o Restrict the selling of certain products and can raise the cost of
production
o Prevent opportunistic businesses from engaging in irresponsible
behaviour
o Detrimental to more responsible businesses who can lost both
revenue and reputations because of other actors
 Intellectual property
o Give ownership rights to those with patents for making of products
and services or copyrights and trademarks associated with use of a
creative product
o No competitors are able to take advantage of products or services
that they developed - carried a fixed cost
o These laws hurt consumers because they allow businesses to sell
products at much higher prices
o Gain knowledge about intellectual property in detail in legal
materials

Competition Law (W7)

 In Australia, certain business practices which limit or prevent competition
are against the law
o “Section 45 of the Competition and Consumer Act prohibits
contracts, arrangements, understandings or concerted practices
that have the purpose, effect or likely effect of substantially
lessening competition in a market, even if that conduct does not
meet the stricter definitions of other anti-competitive conduct such
as cartels,” according to the Australian Competition & Consumer
Commission (ACCC).
 Collusion involves business actively working together to fix prices, rig bids,
share markets or restrict outputs
 Legal impediments to engaging in too much competitive behaviour
o In Australia, “Misuse of Market Power”; forcing suppliers or buyer to
set up contracts that restrict access from competitors

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 Approach today: (i) deal with competition rules and abuse of market power
rules (ii) brief comment on the relationship between the government’s
conferred intellectual property (IP) rights [monopoly rights] and the
competition law and (iii) briefly deal with two miscellaneous issues re
restraint of trade/restraint of work or employment
 Start with competition: starting point is the Competition and Consumer Act
2010 (CCA); (used to be called the Trade Practices Act 1974)
 Regulator (who enforces the CCA): Answer : - ACCC (Australian
Competition and Consumer Commission)
 Penalty: if prohibited conduct is engaged in, there are various remedies or
actions that can be taken against the wrongdoer:
o money penalties of up to $10m for companies, and up to $500,000
for individuals
o injunctions (court order to stop the offending conduct)
o Damages (compensation)
o compensation order to a victim of the conduct
 Market and competition: two key terms because they tend to feature in
many of the provisions that prohibit certain conduct (e.g. some prohibited
conduct requires substantial lessening in competition in a market,
expected to substantially lessen competition in the market)
 Market: defined in s 4E of the CCA. It includes a market for goods and
services where other goods and services are substitutable for or otherwise
competitive with the first mentioned goods and services (underline added)
o Re Queensland Co-operative Milling Association v Defiance Holdings
Ltd [1976] ATPR 40-012: market is an area of close competition
between firms or a field of rivalry between them. A market is an
area of buyers and sellers amongst whom there can be strong
substitution (underline added)
 Whether firms compete is very much a matter of the structure of the
market in which they operate. Elements of market structure as needing to
be scanned are:
o number and size distribution of independent sellers
o height of barriers to entry into market
o character of vertical relationships with customers and suppliers and
extent of vertical integration
o nature and extent of arrangements that restrict firms’ ability to
function as independent entities
 Offences:
o (1) Anti-competitive agreements: s 45(1) prohibits the making
of, or giving effect, to a contract, arrangement or understanding
which has the purpose or likely effect of substantially lessening
competition
 Some observations on elements of s 45(1): (i) contract,
arrangement, understanding (ii) has purpose or effect (iii)
substantially lessening competition
o (2) Price fixing agreements: fixing, controlling or maintaining
prices
o (3) Exclusive dealing: s 47 prohibits exclusive dealing (e.g. you
can only deal with me). There is a list of prohibited conduct.
 A company engages in exclusive dealing if (supply side):
 (i) it supplies (offers to supply) goods or services to an
entity on condition the purchaser will not purchase
from a competitor of the company

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 (ii) it supplies (offers to supply) goods or services to an

entity on condition the purchaser will not resupply to
its customers goods or services purchased from a
competitor of the company
 (iii) refusal limb as well: for example, company refuses
to supply goods because purchaser has not agreed to
not buy from a competitor
o (4) So-called third line forcing: also in s 47 (s 47(6))
 This is where a company forces a customer to purchase from
a specified company
 Subsection 47(6) prohibits a supplier from dealing with a
customer on condition that the customer will purchase goods
or services from a specified third party
o (5) Resale price maintenance (RPM): as implied, this is all about
keeping sale prices up (expectation: translates to more profits?)
 Section 48: it states that a corporation shall not engage in
resale price maintenance (RPM)
 Subsection 96(3) sets out what is RPM. Some examples:
 agree with reseller, they will not advertise or sells good
below a specified price
 company setting a minimum price reseller cannot go
below
 company telling reseller not to discount goods
 company threatening action against a reseller if they
go below the minimum price
o (6) Abuse or misuse of market power: s 46
 Section 46 states that a corporation with a substantial degree
of market power cannot use that power to:
 eliminate or substantially damage a competitor; or
 prevent the entry of a person into a market; or
 deter or prevent competitive conduct in a market.
 Some comments on s 46: (i) having substantial market power
on its own is not prohibited; it is when that power is used
(abused) for one of the three aims that is prohibited (ii) the
section is really focused on monopolies, oligopolies and
cartels
o (7) Mergers and acquisitions: s 50 (regularly discussed in the
media)
 Share acquisition or asset acquisition:
 Section 50 prohibits mergers and acquisitions that would
have the effect or likely effect of substantially lessening
competition in any market
 Subsection 50(3) sets out nine (non-exhaustive factors) that
need to be taken into account, when determining the
substantial lessening of competition question. They include:
 actual and potential level of import competition
 height of barriers to entry to the market
 level of concentration in the market
 likelihood of buyer being able to significantly and
sustainably increase prices
 nature and extent of vertical integration in the market
o (8) Cartel conduct: s 45AF(1)

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 In short, a company cannot make or give effect to a contract,

arrangement or understanding that contains a cartel
provision: ss 45AF(1) and 45AF(2)
 Cartel provision: a cartel provision is a provision relating to:
 (i) fixing, controlling or maintaining the price for goods
or services
 (ii) preventing, restricting or limiting production,
supply, etc, in the supply chain
 (iii) allocating customers, suppliers or territories
between the parties to the arrangement
 rigging bids so that for example, the outcome is
predetermined by one party deliberately putting in an inferior
bid by parties that would otherwise be in competition: s 45AD
 Authorising breach of the rules: s 88 and ss 90(6)-90(8)
o After application by a company, the ACCC has the power to
essentially say to a company, the restraint of trade rules we just
looked at, do not apply
o Subsection 88(1): ACCC can grant an authorisation for conduct to
which one of more provisions in Part IV would or may apply
o Effect of an authorisation: the prohibitions in Part IV do not apply
o Authorisation can only be given if the relevant test is satisfied in
respect of the particular conduct (prohibition): put another way,
different categories of conduct have a different test applied to them

Other
 Approach to classification: Totality of relationship (also called multi-
factorial approach) is to be taken account of, and not just the strict
contractual terms of the relationship: Hollis v Vabu (High Court, 2001)
o Factors/Criteria:
 CONTROL: this relates to the degree of control the party
needing work done, exercises or can exercise over the
worker. The right to control is more important; time of work,
place of work, how work to be performed, free to work for
others needing work done
 INTEGRATION: this is the extent to which the worker is
integrated into the business of the party needing work done,
or is worker working in their own business
 WORKER PAID FOR A RESULT AS OPPOSED TO BEING PAID ON
TIME WORKED BASIS: (i) being paid to produce a result
tended to indicate an independent contractor situation and
(ii) being paid on a time basis indicated employment.
Nowadays, not so significant. Also, the distinction between:
(i) labour and (ii) product of labour is “illusory” (false
appearance, deceptive)
 GOODWILL: which party does this accrue to from the work
done?
 IS WORKER HELD OUT AS AN “EMANATION”
(REPRESENTATIVE) OF PARTY WANTING WORK DONE: For
example, is worker required to wear a uniform with logo of

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party wanting work done. Is equipment labelled with logos,

etc
 SUB-CONTRACT WORK TO ANOTHER: if worker has right to
delegate the work to another person, this is a strong indicator
of independent contractor situation. Caution though. Getting
someone to cover a shift or swapping shifts is not the same
as subcontracting. Requiring permission from party needing
work done also undermines independent contractor situation
 EQUIPMENT: if worker had to provide their own equipment to
do the work (instead of having equipment supplied), this
tended to be an indicator of independent contractor. This is
no longer that persuasive, especially where equipment is
small in value (e.g. bicycle)
 OTHER INDICATORS: (i) skilled labour involved (ii) who bears
the commercial risk if task not performed properly (iii) who
incurs insurance cost to cover activity (iv) ability to bargain
for rate of pay (v) right to exclusive services of worker (vi)
provision of leave benefits and superannuation

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