Evaluation of competition concerns regarding franchise agreements where franchisors determine prices for franchisees

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University of the Witwatersrand, Johannesburg
The franchise agreement refers to an agreement between a franchisee and franchisor, where franchisee establishes outlets that operates under the franchisor’s successful name and trademark, for a fee paid to the franchisor. This places the franchisor and franchisee in a vertical relationship. The franchisor exercises a degree of control ov er the franchisee’s business, which may cause competition concerns, particularly if regard is had to section 5 of the Competition Act 89 of 1998 (hereafter ‘Competition Act’). Section 5 prohibits certain vertical practices, which limit or prevent competition between firms. This research report discusses the prohibited vertical practice of resale price maintenance in the franchise context, which occurs if a franchisor imposes prescribed prices or limits discounts to which franchisees must a dhere. There are several reasons why franchisors would want to engage in such conduct. However, the practice is often anti- competitive as it bars franchisees from competing with each other in terms of price. Franchisors may, however, recommend prices to their franchisees, in line with section 5(3) of the Competition Act, and many franchisees may choose to comply with thes e recommendations. Mon itoring franchisors for engaging in resale price maintenance can be difficult, owing to significant pressure faced by many franchisees to comply with recommended prices, resulting in much of the same price throughout a franchise network. If, after in vestigation, the Competition Commission is of the view that a franchisor has breached section 5 of the Competition Act, it may refer the matter to the Competition Tribunal. Among others, this report demonstrates that many resale price maintenance cases within the franchise context have resulted in settlements, rather than proceeding to a hearing before the Tribunal. This often results in the franchisor paying a reduced administrative penalty, leading to dearth of legal precedent
Submitted in partial fulfillment of the requirements for the degree of Master of Laws by Coursework and Research Report at the University of the Witwatersrand, Johannesburg,Johannesburg, 2023
ranchising, Competition law, Resale Price Maintenance, Prohibited Vertical Practices, UCTD
Brown, Avigael Chana. (2023). Evaluation of competition concerns regarding franchise agreements where franchisors determine prices for franchisees [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace. https://hdl.handle.net/10539/38778