Wilsun Guitars (Wilsun) manufactured and supplied premium quality guitars (Guitars) and accessories in Australia. For many years, Wilsun had a respectable market share of around 45% of the market for the supply of Guitars. Another 30% of the market was divided amongst six local suppliers (i.e. 5% share to Beagles Pty Ltd (Beagles); 5% share to Bee Gees Pty Ltd (Gees); 5% share to Iggy Pop Pty Ltd (Pop); 5 share to Bowie Pty Ltd (Bowie); 5% share to Rose Pty Ltd (Rose); and 5% share to Slash Records Pty Ltd (Slash). The remaining 25% of the market was also evenly divided amongst five importers (the Importers).
In January 2021, Trump Guitars Pty Ltd (Trump) entered the Australian market to supply Guitars. Within one month, Trump through its aggressive commercial tactics and well-resourced finances managed to capture around 20% of customers from Wilsun. Upon learning this news, the manager from Wilsun, Brian contacted the manager from Trump, Donald. They had a conversation to the following effect:
Brian: It is Brian Wilsun from Wilsun Guitars. I want to talk to you about selling guitars in Australia. I understand that you are relatively new to the market and may need some advice on how it works. It is simple. You have to stop targeting my customers and go after the other players in town.
Donald: Why should I? What is in it for me?
Brian: If you continue to target my customers, I will instruct my sales team to target yours. This will only lead to a price war and no-body wants that. You should go after the other players in town, especially the importers - they will not retaliate like we will. You have to think business Mr Trump – Not politics. I suggest burn 10% of your current customers, and start targeting customers from the Importers, Beagles and Bee Gees. I will tell my staff to leave your customers alone and target customers from Pop, Bowie, Rose and Slash.
Donald: This sounds good to me. Let’s just keep it our secret. I don’t want to spend the next ten years in a 4 by 5 m2 cell.
Phone conversation ends.
A week later both Wilsun and Trump start targeting their competitors’ customers. Brian and Donald inform their staff not to target the other companies customers as it will only lead to price wars between the two players and a waste of time trying regain market share.
A month later, Wilsun engages in an aggressive pricing strategy in order to gain extra market share. Brian sends a memo to his sales team instructing them to slash prices of all Guitars below manufacturing costs for the next year. In the memo, Brian informed the sales team that the objective was to wipe out Pop, Rose, Slash and Bowie from the market. The sales team implements the pricing strategy, but Rose and Bowie similar cut their prices too. After six months both Pop and Bowie exit the market, but a new seller Ringo Guitars Pty Ltd (Ringo) manages to enter the market and gains most of their market share. Learning this, Wilsun ceased the aggressive pricing strategy after sustaining huge losses.
Wilsun decided to change tactics. Brian decided to ‘buy out’ Ringo and merge with Trump and Slash. After many late nights, a deal was struck between Wilsun, Trump and Slash, and eventually Ringo was taken over by Wilsun, which now changed its name to Wilsun-Trump-Slash (WTS). Given its increased market share and financial resources (as Donald was a very wealthy person), WTS entered into separate distribution agreements with Rose and the Importers where they would resupply WTS Guitars only, and not source any Guitars from their regular suppliers both local or overseas. WTS also required Rose and the Importers to acquire additional strings and tuning equipment from their preferred supplier, named Fenders Pty Ptd (Fender). Both Rose and the Importers signed the distribution agreements.
Questions
1. Trump whether it has contravened a provision(s) of the Competition and Consumer Act (CCA)? If Trump has contravened a provision(s) of the CCA, is there anything the company can do to avoid liability?
2. Wilsun as to whether its aggressive pricing strategy has contravened a provision(s) of the CCA? Can and should Wilsun engage in this strategy in the future?
3. Wilsun whether the ‘Buy-Out’ and merger has contravened a provision(s) of the CCA?
4. WTS whether it has contravene a provision(s) of the CCA? If WTS has likely to have contravened a provision, is there anything else WTS can do in order to avoid liability under the CCA?
