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Playing the monopoly game

Tuesday, 17 January 2012 | By Oliver Milman

The week prior to Christmas is a fairly lethargic time for news and opinion makers. Many will be on holiday and, anyway, most of their audience won’t be bothered by issues more weighty than wrapping presents and the Boxing Day test.

 

Overall, if there is such a thing as a good time to be hit by a $2.5 million fine and publicly shamed, a couple of days before Christmas Day is probably it.

 

Ticketek was handed this small mercy at the fag end of last year, after being found guilty by the Federal Court of anti-competitive behaviour towards its start-up rival Lasttix.

 

The ticketing giant was accused of denying promoters’ requests to create a special URL that would allow the offering of last minute ticket discounts, for shows including Liza Minnelli concerts, to consumers via Lasttix.

 

Breaking down the barriers

 

While the news failed to ignite much attention due its timing, the huge fine, imposed after court action taken by the Australian Competition and Consumer Commission, is a stark reminder of the tough landscape that many Australian start-ups have to operate in.

 

While Australia is considered an easy place to start a business by global standards, new ventures are regularly faced by near-monopolies that, by fair means or foul, will attempt to snuff out the threat they pose.

 

In Ticketek’s case, the business, along with Ticketmaster, controls around 70% of Australia’s major event ticketing market. It can use its clout with promoters and venues to shut out rivals, as it did with Lasttix, a service that advertises “last minute” available tickets for sought-after events.

 

According to Alistair Little, a partner at leading law firm TressCox, the problem of large incumbents crushing new market entrants is “not an uncommon” one.

 

“Australia is prone to oligopolies and the ACCC has become very concerned about cartel-like behaviour,” he tells StartupSmart.

 

“It can be hard to break into mature markets, unless you have a lot of financial backing. I think the ACCC is very alive to this.”

 

“The Ticketek case is a common example of what happens. You have a company who has control of a resource or facility and they don’t make it available to a competitor.”

 

“Another tactic is to discourage retailers from using other suppliers by threatening to withdraw your products. This is known as exclusive dealing.”

 

The legalities

 

The ACC has drawn up a raft of guidelines on what constitutes anti-competitive behaviour, ranging from price fixing to exclusive dealing.

 

But when does healthy business competition cross the line to become something your new business shouldn’t have to tolerate?

 

“It’s perfectly okay to not deal with someone else, as long as you’re not misusing your market power to do it,” explains Little. “If you are doing it to completely shut someone else out of the market, that is illegal.”

 

The penalties for such anti-competitive behaviour are quite severe. It can be a fine of up to $10 million per offence or up to 10% of the company’s turnover for the year. Alternatively, it can be a percentage of the amount obtained by illegal conduct.

 

The time and cost of pursuing action against a large rival may put off many start-ups, as well as the not insignificant fact that any fine imposed will be paid to the Government, rather than the victim of the law breaking.

 

 

But Little stresses that the tools are available if you have been wronged.

 

“You can run personal proceedings against a company found to be involved in cartel conduct,” he says. “You will still have to prove that you suffered a loss due to the cartel.”

 

“These cases often run as class actions, as they make it more affordable for the businesses involved.”

 

Battling against the odds

 

Tony Faure, chairman of Lasttix, would not comment on the Ticketek case. But he is no stranger to challenging market dominance, having been involved in the launch of businesses such as iSelect, Seek and CarSales.com.au.

 

“Any category that you go into to disrupt, usually with a web model, will see the incumbent use their market power – you have to expect this,” he says.

 

“With iSelect, Seek and CarSales.com.au, we were clearly threatening the way things were done before. The newspapers didn’t like CarSales, as they thought they’d lose advertising revenue, for example.”

 

“Incumbents will use any tool they can to protect their market share. If they are concerned, this usually suggests that you are going about things in the right way. It’s a good sign. But you may want to stay under the radar for as long as possible.”

 

According to Faure, there are common tactics used by large businesses that feel their position is under threat.

 

“Typically, if you offer something in return for revenue, the large business will offer it for free,” he explains.

 

“That’s what Fairfax did in response to CarSales – they bundled online and print advertising together for the same price. You risk losing out because the incumbents have more margin to play with. They can afford to take that hit.”

 

“They will also use industry opinion and research to scare people off your business. They can bring together vested interests to put pressure on you.”

 

So what should start-ups do in response to this?

 

“Your business needs a clear value proposition,” Faure advises. “You need to be clear and bold about what you offer and why it is different to the rest of the market.”

 

“Get into a positive loop by thinking about your own business and customers. Don’t spend your time thinking what a disaster it would be if the competition gets its act together.”

 

“You can’t outmuscle or outspend your big rivals, so don’t start offering lots of things for free. Demonstrate why you offer more value and do what you do well. Don’t be spooked.”

 

“Ultimately, if a competitor wipes you out, you’ve got the wrong business model. Almost always, incumbents aren’t good at disrupting themselves.”

 

“In 1996, News Ltd and Fairfax could’ve run away with the classifieds market – they had the relationships and the business model, but it’s hard to disrupt yourself.”

 

Five steps to stay competitive

  1. Stay the course – stay true to what your start-up offers. A proper business plan will analyse the market and predict the threats to your venture. Rivals will adapt – if you haven’t factored this in, you’re in trouble.
  2. Focus on your customers – even if you’re being crushed under the boot of a large rival, don’t forget the most important people in all of this – your customers. Provide them with the personal, top-notch service that will negate their need to jump ship.
  3. Get legal help – if you feel you’ve been unfairly shut out of the market, take your gripes to a lawyer. He or she will be able to frame your case properly, allowing the ACCC to do the rest of the leg-work on your behalf. Set the ACCC up for an easy win and you should get recourse.
  4. Don’t go it alone – chances are that other start-ups will have been hurt by the anti-competitive behaviour that has hit your business. Seek them out and consider launching a class action, if your case is strong enough.
  5. Don’t worry about it getting nasty – if you’re trying to access the raw materials and customers used by a large competitor, it’s likely they will just try to squeeze you out of the market, rather than let things become ugly. “Maybe it happens in smaller markets, but large businesses generally don’t have to send hit men around to persuade you to back off,” says Little.
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