Chapter 2 Comparison of the Bills
Introduction
2.1
This review of the Bills focuses on four key areas of comparison. The first
is whether they only apply to prices or whether they apply to other market
information as well. For example, signalling information which results in
quantity restrictions of a certain good could then result in price increases.
2.2
The second is whether the Bills require ‘purpose and effect’. That is,
would the Australian Competition and Consumer Commission (ACCC) have to prove
both the purpose and effect of an action which could substantially lessen
competition? The ACCC argues that to prove both could be extremely difficult.
2.3
Thirdly, the ACCC notes that the behaviour covered by the Competition
and Consumer (Price Signalling) Amendment Bill 2010 (the first Bill) is subject
to the substantial lessening of competition test. However, the ACCC points out
that, as some of the potential behaviour associated with price signalling is so
offensive, then it would be reasonable to include a per se offence.
2.4
The final question is the coverage of the Bills. That is, whether they
apply to the economy overall or just a particular sector.
2.5
Each of these issues is discussed in detail in this chapter.
Conduct within the scope of the Bills
Background
2.6
Proposed section 45A in the first Bill states that corporations may not
engage in price signalling, which involves communicating price related
information. Under proposed subsection 45A(5), this is defined as:
price-related
information means information that relates to the price or terms and
conditions of the supply or acquisition, or proposed supply or acquisition, of goods or services, and that may have a bearing on the
price of those goods or services.
2.7
The Competition and Consumer Amendment Bill (No. 1) 2011 (the government
Bill) takes a different approach. It generally refers to the disclosure of
information and applies two definitions, depending on the prohibition. Proposed
section 44ZZW (the per se prohibition in relation to private disclosure between
competitors) applies to price related information only. Proposed section 44ZZX
(the general prohibition on information disclosure where it has the purpose of
substantially lessening competition) applies to the following categories of
information:
- price related
information;
- the capacity of the
organisation to supply certain goods or services; and
- anything related to
the business’s commercial strategy for certain goods and services.
Analysis
2.8
The ACCC criticised the first Bill because it only applies to prices. The
ACCC explained that a range of cartel or collusive behaviour may not
specifically deal in prices but ultimately could affect market prices. A
‘cartel provision’ is a provision that fixes prices, restricts outputs in the
production supply chain, allocates customers suppliers or territories, or rigs
bids. For example, the ACCC cited quantity based offences such as market
sharing or collusive tendering ‘which is organising who is going to bid in a
particular tender and who is not’.[1] The ACCC stated:
You can either engage in collusive behaviour or signalling
behaviour in order to increase your price directly or alternatively you can
engage in collusive behaviour or signalling behaviour in order to achieve some
sort of quantity restriction, perhaps to be the sole supplier in a particular
segment of the market and then you can increase your price without worrying
about any competitive reaction.[2]
2.9
The ACCC identified market sharing as a further example where prices
could be distorted to the detriment of consumers but which may not be caught by
the bill. For example, a competitor could disclose information to the market
that they are going to focus on a certain area of the market. This could lead
other competitors to focus on the segments of the market that have been
vacated. The ACCC explained that this could allow a competitor to increase
their prices in their market segment because they know that their competitors
are focusing on other segments.[3]
2.10
The committee scrutinised the ACCC over the potential difficulties of
extending the bill from dealing with ‘price signalling’ to broader types of
conduct. The ACCC in response stated:
I do not think that extending this bill to cover more than
price signalling is an enormously difficult task. I think it is, if you like, a
bit of ‘mind over drafting’ here and there so that, instead of talking about
prices, you are talking about output-related information as well.[4]
2.11
On an initial analysis, the government Bill is to be preferred over the first
Bill because of its wider application. However, the committee also received
evidence that any such legislation should be wider again. Two academics, Brent
Fisse and Caron Beaton-Wells, and Luke Woodward, previously Executive General
Manager, Compliance Division at the ACCC, proposed that legislation should
focus on collusive practices, rather than the disclosure of information.
2.12
One reason for this approach is that it prevents pro-competition
legislation from inadvertently prohibiting competitive information disclosures.[5]
This has also been referred to as ‘overreach’. The Explanatory Memorandum to
the government Bill recognises this issue[6] and the government Bill addresses
it through creating two targeted offences. It creates the per se
prohibition for the private disclosure to a competitor of prices. This would
apply to the disclosures made in the Apco case. In proposed section 44ZZX, it
prohibits more general disclosures where they are made for the purpose of
substantially lessening competition in a market.
2.13
There is also a range of exemptions, which are discussed in more detail
below. They include notifications, where a business notifies the ACCC of its
conduct and that conduct is in the public interest, and authorisations, where a
business obtains the ACCC’s approval to engage in a particular activity. The
exemptions also include disclosures:
- between related
bodies corporate;
- for collective
bargaining;
- to participants in a
joint venture (the per se prohibition only); and
- for acquisitions of
shares or assets (the per se prohibition only).
2.14
While the committee received evidence in support of wide-ranging
legislation, other organisations were of the view that maintaining a
price-based approach was more appropriate. Caltex commented that the bill ‘should
only apply to price information and not more broadly, as is the case in the
government bill, and it is our view that it should only apply to future prices.’[7]
Conclusion
2.15
The first Bill applies to price related information only. The ACCC and
others argued that there is a range of behaviour that, while not directly
involving price, will ultimately impact on the price consumers pay for goods or
services. For example, the ACCC cited quantity based offences or collusive
tendering which is organising who is going to bid in a particular tender and
who is not.
2.16
Market sharing is a further example where prices could be distorted to
the detriment of consumers. For example, a business could disclose to the
market or particular competitors that they are going to focus on a certain area
of the market thereby leaving their competitors to focus on other sectors.
These types of activities work to undermine markets and disadvantage consumers.
Therefore, the government Bill, which applies to a range of information
disclosures rather than just prices, is superior to the first Bill.
2.17
Some individuals argued that the government Bill should be widened to focus
on collusion, rather than information disclosure. In the view of the committee,
the government Bill addresses this in two ways. Firstly, it has created two
targeted offences where there is a per se prohibition on the most problematic
conduct (private disclosures between competitors) and a general prohibition on
disclosures where they are made for the purpose of substantially lessening
competition. There is also a range of important exemptions to ensure that
legitimate commercial conduct is not inadvertently captured. Therefore, the government
Bill has broad scope while simultaneously targeting the most anti-competitive conduct.
Purpose and effect
Background
2.18
The first Bill’s provisions require that a deliberate intent of
producing anti-competitive behaviour be shown, but also that an actual effect
be demonstrated. Proposed subsection 45A(2) defines price signalling:
- For this section, a corporation
engages in price signalling if:
- it communicates price-related information to a competitor; and
- 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
- 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.
2.19
Proposed subsection 45A(9) states:
For
this section, a communication has, or is likely to have, the effect of
substantially lessening competition in a market if it has that effect on its
own, or in combination with other communications or other acts.
2.20
The government Bill would be less restrictive on the ACCC. Private price
communications between competitors are prohibited unless they fall within the
exemptions, regardless of purpose or effect. Other more general disclosures of
information are prohibited if they have the purpose of substantially lessening
competition.
Analysis
2.21
The ACCC argued that the requirement to establish both purpose and
effect of substantially lessening competition was a serious shortcoming of the first
Bill. The ACCC would not only need to demonstrate that the purpose of a
communication was to substantially lessen competition, but that this was also
the outcome or effect. The ACCC noted that the normal competition provisions in
the Competition and Consumer Act 2010 (CC Act) ‘are couched in
terms of purpose and/or effect.’[8] The Treasury supported
this view noting that under existing legislation, ‘the intent of damaging
competition is considered to be enough to contravene those provisions.’[9]
2.22
The ACCC advised that the usual test in the competition area is purpose
and/or effect. While a purpose and effect test applies to secondary boycott
provisions, the ACCC was not aware of any legislative provisions since 1996
that required both purpose and effect.[10]
2.23
The ACCC advised that having to prove both purpose and effect could be
so onerous that it would limit the investigations it undertakes. The ACCC
stated:
…with the purpose and effect formulation, that would be a
very difficult burden of proof for us. I suspect that would mean that we would
probably take very few cases and that would be recognised as being the case.[11]
2.24
However, the requirement to prove both purpose and effect was supported
by Caltex which considered it a safeguard to capturing pro competitive
information. CALTEX stated:
The addition of an effects test provides an additional
safeguard to avoiding the capture of communication of neutral and
pro-competitive information. This means that even if communication of
price-related information is inferred (incorrectly) to have an anti-competitive
purpose, it must be shown to substantially lessen competition. This is a more
difficult test than in the government Bill, which requires a public disclosure
of information not to have the purpose of substantially lessening competition,
regardless of the effect.[12]
Conclusion
2.25
It is clear that the requirement for both purpose and effect would be
counter-productive in terms of unintentionally limiting the ability of the ACCC
to successfully enforce the CC Act. The ACCC advised that the usual test in the
competition area is purpose and/or effect. The purpose and effect test required
in the first Bill would be so onerous that the ACCC advised that it would
‘probably take very few cases.’
2.26
The government Bill is superior. It places a strong prohibition on
private price disclosures between competitors, which is the most reprehensible
conduct in this field. It then provides an additional requirement on the ACCC
to show that more general disclosures have the purpose of substantially
lessening competition. This is a fair protection for business.
Substantial lessening
of competition test
Background
2.27
Proposed section 45A in the first Bill sets out a prohibition of price
signalling which is governed by a substantial lessening of competition test.
Proposed subsection 45A (2) states:
- For this section,
a corporation engages in price signalling if:
- it
communicates price-related information to a competitor; and
- 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
- 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.
2.28
The government Bill has two prohibitions. The per se offence in
relation to private disclosures of price information between competitors does
not require that the conduct substantially lessens competition or have that
purpose. The second offence relating to more general disclosures requires that
the conduct has this purpose.
Analysis
2.29
The ACCC was critical of the first Bill because all the behaviour it covered
was subject to the substantial lessening of competition test. The ACCC asserted
that there should be a higher level prohibition on behaviour that was so
offensive and unredeeming.[13] These offences are
normally referred to as per se offences. The ACCC commented that:
...if you go to what we might call the very worst end of the
spectrum and you were to consider something like competitors passing between
themselves their future pricing intentions and doing it in secret—using those
criteria, that is about the worst end of the spectrum—you would wonder whether
that sort of conduct perhaps should not be simply a per se offence.[14]
2.30
In contrast, the government Bill seeks to create a per se
prohibition and a substantial lessening of competition prohibition. Proposed
section 44ZZW prohibits a business from making a private disclosure of pricing information
to a competitor (a per se offence). Proposed section 44ZZX prohibits a
business from making a disclosure on a wide range of matters if the purpose of
the disclosure is to substantially lessen competition in the market.
2.31
The ACCC advised that the approach taken in the UK and European
Community ‘is basically per se, in the sense that they refer to object and/or
effect rather than purpose and/or effect’.[15]
2.32
However, the Australian Bankers’ Association (ABA) criticised the use of
per se offences. It commented that it could identify a range of
legitimate activities that ‘would fall foul’ of the per se offence.[16]
In February, the ABA stated in relation to the exposure draft of the government
Bill:
Just to give one illustration: under the government’s bill,
based on the legal advice I have received from trade practices lawyers, it
would be an offence for a bank to give a written quote to a customer. The
reason is that if a customer comes in and says, ‘I am fortunate enough to have
$10,000 to put on term deposit, what is the best interest rate you can do for
me?’ and the bank says, ‘We’re prepared to pay you six per cent’ and the
customer says, ‘Can I have that in writing?’ and then takes that written
communication from that bank to another bank—because the government’s bill
explicitly says that this communication can be through intermediaries—and shows
it to the other bank, our advice is that that will fall foul of the per se
offence.[17]
2.33
Disclosure through intermediary is covered under proposed subsection
44ZZU(3) of the government Bill tabled on 24 March 2011. The EM states that:
...if a corporation makes a disclosure to an intermediary,
for the purpose of the intermediary disclosing (or organising for the
disclosure of) that information to other persons and the intermediary does in
fact disclose that information to those other persons, then a disclosure is
deemed to have been made by the corporation to those persons.[18]
2.34
However, the EM provides an example where disclosure by a third party to
a competitor is not action by an intermediary and therefore is not a
disclosure. The EM provides the following example:
Ms Smith wishes to buy a new car. Corporation A discloses to
Ms Smith that the best price they can sell the car for is $24,000.
Ms Smith is dissatisfied with this quote and goes to a competitor of
Corporation A, Corporation B. Ms Smith discloses to Corporation B that
Corporation A’s best price is $24,000, in the hope that Corporation B
offers a cheaper price.
In this scenario, Ms Smith is not an intermediary, and a
disclosure has not occurred by Corporation A to Corporation B. This is because
Corporation A did not disclose the price of the car to Ms Smith for the
substantial purpose of Ms Smith passing it on to Corporation B. The substantial
purpose of Corporation A’s disclosure was to inform Ms Smith, a potential
customer.[19]
2.35
The government Bill explicitly protects legitimate pro-competitive
communications. The EM commented that:
... it is important to recognise that any provision which
seeks to address anti‑competitive price signalling and other information
exchanges will be exposed to the difficulty of only capturing anti‑competitive
exchanges, whilst not impacting on pro‑competitive or benign information
exchanges.[20]
2.36
The government’s EM discussed a range of ‘defences, exceptions and
authorisations’ in order to ensure that only conduct of most concern is prohibited.
The government’s EM stated that:
... it is anticipated that provision would be made for reasonable
defences, similar to those available for the cartel provisions of the TPA so
that the ‘per se’ prohibition would not apply to disclosures between:
- related companies;
- joint venture
participants or their representatives on a joint venture management board or
committee concerning the prices to be charged by the joint venture;
- a supplier and an
acquirer concerning a supply price, where the supplier and acquirer also
compete in respect of the supply of the relevant product; and
- entities that
comprise a dual listed company.[21]
2.37
The government EM noted that ‘businesses who wish to continue engaging
in conduct in contravention of the new prohibitions, and can demonstrate that
doing so provides a net public benefit, can seek authorisation from the ACCC.’[22]
2.38
The government EM advised that through the consultation process,
stakeholders argued that the defences and exemptions should be expanded. The EM
outlines a range of areas where this occurred. The EM commented that the ‘the
inclusion of these new exceptions addresses concerns raised by stakeholders and
further reduces the prospects for unintended consequences’.[23]
2.39
In addition to the defences and exemptions, notifications and
authorisations will provide further protection. The government EM stated that
‘businesses will be able to obtain immunity from the ‘per se’ prohibition by
notifying their conduct to the ACCC.’[24] The notification
provisions are laid out in section 93 of the CC Act. The government EM stated:
Notification can provide businesses who wish to continue engaging
in conduct in contravention of the new prohibitions, and can demonstrate that
doing so provides a net public benefit, with immunity. It is a more cost
effective and timely process, relative to authorisation, to seek immunity and
will reduce the compliance costs on business of the proposed prohibitions. The
proposed notification process is analogous with the third line forcing
notification (a form of exclusive dealing conduct (section 93) which currently
has a lodgement fee of $100 per notification.[25]
2.40
In submissions, the banking industry expressed concern that it would not
be able to conduct corporate workouts. These are where a distressed business
needs to change its financing arrangements. If the business has a number of
lenders, then they will need to communicate price information to each other.
Time is critical in these cases because directors have a legal obligation not
to continue trading if the business is insolvent. The industry is concerned
that notifications are not practical because section 93 allows the ACCC to
state that the proposed conduct does not meet the requirements of section 93.[26]
Conclusion
2.41
The first Bill only provides for a substantial lessening of competition
prohibition. However, it does not include a per se prohibition which deals
with the most offensive types of anticompetitive behaviour such as the private
communication of prices between competitors. The committee asserts that where a
business secretly passes pricing information to a competitor then a clear per
se prohibition should apply.
2.42
The government Bill has a range of exemptions to both prohibitions.
Although industry has expressed some concern about how they would operate, the
committee is satisfied that they provide scope for businesses to exchange
sufficient information to continue normal operations. The committee anticipates
that the ACCC and businesses will establish a suitable range of precedents so
that some specialised tasks, such as corporate workouts, will again become
routine matters.
Industry coverage
Background
2.43
The Bills take different approaches to specifying the industries subject
to prohibitions on anti-competitive price-signalling. Proposed subsection 45A
in the first Bill has a general statement that, ‘A corporation must not engage
in price signalling’. Proposed section 44ZZT in the government Bill states that
the provisions apply to goods and services specified in the regulations.
Analysis
2.44
The committee received a number of submissions that discussed the issue
of how far across the economy the prohibition of price-signalling should reach.
A number of stakeholders stated that coverage should be universal, rather than
specific to one or other designated sector of the economy.[27]
The Law Council of Australia elaborated on this:
Any prohibition on price signalling should apply universally and
not just to selected business sectors. Competition law seeks to prohibit
particular types of conduct on account of their detrimental impact on competition.
Selective application of the proposed prohibitions undermines the general application
of the Competition and Consumer Act 2010 (Cth) (CCA) across all industries on an
equal basis. The possibility of the prohibitions being unilaterally applied to specified
goods or services by regulation is contrary to the principle of general application,
and risks introducing considerable uncertainty, not only for firms whose primary
business is dealing in the goods or services that are prescribed by regulation,
but also for customers of such businesses, and for businesses dealing in goods or
services that are at risk of being prescribed.[28]
2.45
On the other hand, an industry group outside the banking sector, the
Australian National Retailers Association, accepted that the Government intends
to apply the prohibitions to banks. The Association requested that the
provisions should not be extended until their operation has been adequately
reviewed, preferably through a statutory mechanism.[29]
2.46
The Explanatory Memorandum discussed this matter. It stated that the
Government’s proposed approach, ‘allows the Government to target the proposed
prohibitions towards sectors where conduct of concern has been identified,
without raising unintended consequences in other sectors’.[30]
2.47
It also noted that the use of regulations to target specific sectors
that require urgent attention provides the Government with:
... greater flexibility in applying such prohibitions to
other sectors in the future. All regulations made under the new Division 1A of
the CCA will be disallowable instruments and therefore subject to Parliamentary
oversight.[31]
2.48
If an incremental approach is going to be used in selecting which
sectors will be subject to the provisions, the ACCC supported the use of
regulations:
... if there is going to be some sort of phased mechanism for
coverage we think the process of regulation going through both houses of
parliament is a preferable approach because it does give us clarity as to
exactly what the law is and who it applies to at a particular point in time.[32]
Conclusion
2.49
The committee is faced with a question of balance. The committee
recognises that there are advantages in having generally applicable
legislation. However, the committee also recognises that there is significant
community concern about the conduct of banks. The government Bill allows the
ACCC to focus its resources on a high priority area. It also gives the
Government the flexibility to make further regulations to apply the prohibitions
to other sections of the economy as called for, while providing the Government
with enough time for further review and detailed consideration.
2.50
The committee notes that the Government has made a commitment to review
the operation of the Bill before extending it to other sectors of the economy.[33]
Some industry groups regarded this undertaking to be so important that it
should be a requirement in the Bill.[34] Although the committee
does not believe that legislation is warranted on this, the committee agrees
that a review prior to extending the operation of the Bill is important and
should be conducted.
Overall conclusion
2.51
Competitive markets help to raise productivity, efficiency and
innovation which lead to increased living standards, increased consumer choice,
sustainable economic growth and lower unemployment rates. Anti-competitive
price signalling has the potential to undermine these outcomes. Currently, the
ACCC’s powers are inadequate to deal with price signalling.
2.52
The first Bill attempts to address this shortcoming. The committee
supports the intent of the Bill but, due to its fundamental limitations, the
legislation will not provide sufficient power for the ACCC to address price
signalling behaviour.
2.53
The government Bill is superior. It captures the most serious conduct,
that of competitors privately disclosing price information, with a per se
offence. This would mean that the conduct in the Apco case would be
successfully prosecuted.
2.54
The House should pass the government Bill.
Recommendation 1 |
| 2.55 |
The House of Representatives pass the Competition and
Consumer Amendment Bill (No.1) 2011 and reject the Competition and Consumer
(Price Signalling) Amendment Bill 2010. |
Mr Craig Thomson MP
Chair
21 June 2011