Page 186 - DMGT401Business Environment

Unit 8: Legal Environment

8.1.2 Restrictive Trade Practice (RTP) Notes

A Restrictive Trade Practice is one which has, or may have, the effect of preventing, distorting or
restricting competition in any manner and in particular:
1. which tends to or obstructs flow of capital or resources for production,
2. which tends to impose unjustified costs or restrictions on consumers, relating to goods
and services by manipulation of prices, or by conditions of delivery or to affect supplies in
market.
The deemed RTPs are as follows:
1. Restrictions on Buying/Selling: This means restricting person or persons to whom goods
may be sold or from whom to be bought. Such as Trade Associations that asks their
members not to deal in goods of a particular manufacturer.

Example: Manufacturers restricting its distributor to appoint a sub-distributor or dealer
without prior permission. A manufacturer restricting its dealers/distributors to supply goods
to particular institutions or consumers. Distributors selling goods to third party without prior
permission of the manufacturer, etc.
2. Tie in Sales or Full Line Forcing: This means requiring a person to purchase something
else compulsorily, along with goods he wants to purchase.

Example: Such as forcing dealers to purchase orange drinks with cola drinks, or forcing
purchase of gas stoves with gas connections, requiring dealers to maintain a minimum level of
stock of the full range of products of the manufacturer, schools making it mandatory to buy
uniforms and books only from their own shop, etc.

3. Exclusive Dealing Agreement: It is about forcing not to deal with goods other than those of
the seller. For instance dealers not to deal with similar type of products of the competitor,
or buyers force manufacturers not to manufacture identical goods for any other buyer
without consent of the particular buyer, producers enter into a long term contract with an
artist prohibiting him from giving performances anywhere else, agreements wherein a
distributor will purchase goods only from the manufacturer or from some other as may
be nominated by him.
4. Collective Price Fixation and Tendering: This is a collective agreement to purchase or sell
or to tender only at agreed prices or terms. This is called 'cartel'. It is also called the Knock
Out Agreement.

Example: When tyre or cement manufacturers, or some trade associations increase prices
or restrict supply uniformly and simultaneously, by mutual agreement.
5. Restriction by Association: This is when associations don't allow non-members to carry
the goods, thereby hampering free flow of goods, resulting in imposing unjustified costs
on the customer.
6. Discriminatory Dealing: Giving concessions or benefits on the basis of turnover or giving
huge discount to large buyers will be considered as RTP, if such discounts are injurious to
competition. However, discounts are very common in business and many discounts are
not considered as discriminatory as cash discount on prompt payment, discount to different
classes of customers as government and private customer, incentive to increase sales,
newspapers charging different rates for different pages of newspaper, etc.

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