Metcash v ACCC

The fight is on.

Metcash have announced that they will proceed with its planned takeover of Franklins, despite the ACCC last week announcing that it would oppose the acquisition (view press release and informal merger decision).  Yesterday’s media release stated, in part:

Metcash Trading Limited has notified the ACCC that, in not fewer than 5 business days from today, it intends to take further steps to proceed with the Proposed Transaction.

This is the first such challenge since the Toll Holdings showdown in 2006 (which was ultimately resolved with undertakings) and AGL in 2003, which was successful in its Federal Court challenge (in which it sought and was given a declaration that its merger would not contravene s 50 (see AGL case).  I can’t wait.

Thanks to the usual suspects (Nationals Senator Ron Boswell and independents Nick Xenophon and Steve Fielding, supported by the opposition) the Senate Economics Committee is also going to consider the ACCC’s decision in this (see Senate Hansard, 23/11/2010 at p 37) – this is an extraordinary referral to the Committee and it’s not entirely sure what it is designed to achieve, other than political point scoring and an undermining of the ACCC’s independence.  Submissions are due by 29 November (less than a week, which just adds to the  farcical nature of this inquiry).  The report is due on 17 December 2010 (because it takes non-expert Senators much less time to get their head around the complex law and economics issues associated with mergers than the expert lawyers and economists at the ACCC).  Another extraordinary waste of time and money.

Much more to follow on this one.

There’s plenty of media on this, including:

• Elizabeth Knight, ‘Senators back off! Grocery dispute belongs in court‘ (24/11/2010, SMH)
• Supratim Adhikari, ‘Metcash mettle‘ (Business Spectator, 24/11/2010)
• Ian McIlwraith, ‘Metcash defies competition ruling on supermarkets‘ (SMH, 24/11/2010)
• Rebecaa Urban, ‘Metcash ready to take on the watchdog ACCC‘ (The Australian, 24/11/2010)
• John Durie, ‘Metcash chief Andrew Reitzer defies ACCC ruling on Franklins‘ (The Australian, 24/11/2010).
• Sue Mitchell, ‘Metcash to defy ACCC over Franklins’ (AFR, 24/11/2020, p 50)

Price signalling bill introduced

Shadow Minister for Competition, Mr Bruce Billson, this morning presented the Competition and Consumer (Price Signalling) Amendment Bill 2010 at 10.26am. An explanatory memorandum was presented and statement made.  The Bill was read for a first time at 10.37am.

Although promoted as a response to concerns about banking competition, it is not limited to any particular sector of the economy. The explanatory memorandum states:

This Coalition Private Member’s Bill seeks to establish a new head of power under which the Australian Competition and Consumer Commission (ACCC) would be able to investigate and seek penalties for ‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

Price signalling is essentially defined in the bill as communication of price-related information to a competitor for purpose of encouraging the competitor to vary supply or acquisition prices in circumstances where that communication has, or is likely to have, the effect of substantially lessening competition.

The new provision would be contained in Division 2 of Part IV of the TPA and would not be subject to the new criminal regime applicable to some forms of cartel conduct.  The provision would be in the form of a new s 45A (filling the gap left by the repeal of the price fixing provision last year).  It would provide, in part:

Prohibition of price signalling

(1)    A corporation must not engage in price signalling.

(2)    For this section, a corporation engages in price signalling if:

(a)    it communicates price-related information to a competitor; and

(b)    it does so for the purpose of inducing or encouraging the competitor to vary the price at which it supplies or acquires, offers to supply or acquire, or proposes to supply or acquire, goods or services; and

(c)    the communication of that information has, or is likely to have, the effect of substantially lessening competition in the market for those goods or services, or in another market.

Establishing the purpose of a communication

(3)    Without in any way limiting the manner in which the purpose referred to in paragraph (2)(b) may be established, a corporation may be taken to have communicated price-related information to a competitor even if, after all of the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation, or of any other person, or from other relevant circumstances.

Several more sub-sections follow which define various terms. In particular, it captures public and private communications, including those made by way of public announcement. Importantly, however, transmissions or re-transmissions of price-related information that is already in the public domain is excluded, as are communications required by law.

The bill is more modest than had been feared by some.  Importantly, it applies only to price signalling when substantial lessening of competition flowing from that conduct can be established – this is not an easy threshold to meet – and requires a purpose of inducing a competitor to alter prices.  Although that purpose may be inferred, it must still be established in each case.  The exclusions noted above will also limit its scope.

Although it is suggested that there may be better or more effective methods of capturing anti-competitive communications between competitors (if such a law is required – and there is some argument that it is following the narrow interpretation of the word ‘understanding’ in the petrol cases – then addressing that issue directly rather than creating yet another untested provision would seem to be the preferred course of action), for a law directed toward “price signalling”, the proposed bill would seem to strike the balance appropriately between identifying that conduct likely to cause genuine anti-competitive concern and be an appropriate focus for legislative intervention, and avoiding casting the net too wide and thereby risking a series of unintended consequences (for example, a per se ban would have stifled even pro-competitive public price communications).

That said, if passed, the bill is unlikely to have an earth-shattering impact – proof of anti-competitive effect will be very difficult.

Bank competition again – the Zumbo claims

Frank Zumbo is at it again, claiming Australia has ‘some of the weakest competition laws in the world’ in his latest Punch editorial.  These ‘weak’ competition laws are what he blames for the ‘mess’ we are said to be in with the four big banks.

This is not the first time Zumbo has made this claim and he’s never explained the basis on which it is made.  It is simply not accurate.  Some explanation for the claim would be nice.  The mere existence of a number of oligopolistic markets is not evidence of weak competition laws, as there are other explanations for this is many cases (market size, geographic isolation etc).

However, having made the claim Zumbo goes on to argue that, naturally, ‘stronger competition laws’  and ‘effective enforcement’ by the ACCC are ‘essential’.  I’m not going to comment on the ‘proposals’ made (including that the government set up a ‘people’s bank’ with outlets in Australian post offices), save for one – the claim that the ACCC should be using phone tapping powers against the banks.

The ACCC gained indirect power to request phone tapping warrants last year when the criminal cartel laws were introduced. But obtaining them in situations like this is not a simple task.  The ACCC is not able to obtain a phone tapping warrant itself – it must ask the Australian Federal Police (or other authorised body) to obtain one – and it can only be sought where the ACCC suspect an organisation is involved in anti-competitive conduct defined as a cartel; various other criteria must also be met.  Even if the ACCC think the banks are ‘price signalling’ this is not the same as a cartel as defined in the Act – the whole point of seeking price signalling laws is because existing cartel laws do NOT capture this sort of conduct.  The telephone interception warrants can’t be obtained and used in the mere hope that the banks might be privately meeting to discuss interest rates.

Banking competition

In an economic note released today, Treasurer Wayne Swan stated that the Government is in the process of developing a ‘new banking competition package’, one part of which involves ‘working closely with the ACCC to carefully and methodically design new laws to prevent price signalling’. This is not really news, but he does also indicate that more will be announced shortly on this issue.

Of course the Treasury could have addressed this issue more fully some time ago if it had ever bothered to consider submission made to its own 2009 inquiry on the ‘meaning of understanding’ under the TPA, which in part was designed to address this issue.  Alternatively, it could wait until the current Senate Inquiry into Competition in the Banking Sector is complete to make a more informed contribution.  So why now?  Clearly politicians are falling all over themselves to be the first to implement new laws designed to ‘crack down’ on price-signalling (which nobody was particularly concerned about in the banking sector until very recently; a couple of years ago it was much more popular to attack petrol retailers over this issue).  Joe Hockey got the ball rolling with his ‘9 point plan‘ to attack banks, the first ‘point’ being” ‘Let’s give the ACCC power to investigate collusive price signalling (that is, oligopolistic behaviour), which is exactly what Graeme Samuel has called for’.  This was followed by his announcement on Thursday that the ‘Coalition will move to introduce a Private Members’ Bill into Parliament to give the Australian Competition and Consumer Commission (ACCC) further powers to investigate price signalling that leads to collusion and anti-competitive behaviour among the big banks’. No more substance than that, but it’s popular, so everyone now wants in on the action.

This current reactive and populist approach to reform is disappointing, if predictable.  There are limitations (arguably inappropriate ones) on the extent to which tacit collusion or signalling between competitors is captured by our existing competition laws; both within the banking sector and more broadly (the apparent desire to confine reform to the banking sector makes no logical sense, but there are clear political reasons for this approach).  But this is a notoriously difficult area to legislate and it’s important to get it right, lest unintended consequences result in more harm than good.  Right now we have various parties vying to be seen to be the ‘toughest’ on banks, a current Senate Inquiry on the issue, and a (more sensible) 2009 inquiry which has never officially been concluded, but appears dead in the water.  We dearly need a ‘Rally to Restore Sanity‘ to our approach to competition reform, which appears to have completely lost the plot in recent years and is continuing downhill …

For now, we must wait and see what they come up with and hope that any proposed law enjoys the public scrutiny it deserves before being rushed through Parliament … I am not optimistic.

In terms of price signalling generally, if you have access to the journal it’s worth having at look at a recent article on topic: R. Smith, A. Duke and D. Round, ‘Signalling, collusion and s 45 of the Trade Practices Act’ (2009) 17 Competition & Consumer Law Journal 22-42.

Update: A couple of interesting news items on topic:

Laurie Oakes, ‘Swan drops ball on Hockey Bill’ (The Sunday Times, 6 November 2010)
Oakes states in part, ‘… the [Hockey] Bill is a stunt. In an area as complex and sensitive as the financial system you can’t just throw legislation together.  It requires close and detailed work of the kind Swan has been engaging in. It requires getting advice from experts the regulators which Hockey has not done, and cannot do.’

David Uren, ‘Wayne Swan Ready to Hit Banks on Exit Fees’ (The Australian, 8 November 2010) The article quotes Brent Fisse as saying (sensibly) that ‘it was alarming that both the Coalition and Labor appeared to be rushing legislation on price signalling without public consultation’. “The chances of any of them getting satisfactory laws in the short term, with a rush and without public consultation, are extremely remote”