People of the same trade
seldom meet together, even for merriment and diversion, but the conversation
ends in a conspiracy against the public, or in some contrivance to raise
prices. It is impossible indeed to prevent such meetings, by any law which
either could be executed, or would be consistent with liberty and justice. But
though the law cannot hinder people of the same trade from sometimes assembling
together, it ought to do nothing to facilitate such assemblies; much less to
render them necessary.
In the recent public debate on banking competition in Australia, the
issue of anti-competitive price signalling has been raised as a possible area
of legislative reform. Anti-competitive price signalling refers to a corporation
conveying to its rivals its future price intentions. By so doing, the
corporation eliminates uncertainty about the price of its goods or services,
thereby reducing the risks of competition and impeding the functioning of a
Price signalling has been a significant issue in this inquiry. Various
witnesses have put differing views on the nature and harm of this conduct and
several have offered comment on the legislative proposals. The Committee has
also kept abreast of the broader public debate on the issue. Since the Senate
referred this inquiry:
both the Government and the Coalition have proposed legislation
to address price signalling;
the Government has called for, and received submissions on its
Exposure Draft Bill and has subsequently introduced a bill into the parliament
to address price signalling;
the House of Representatives Standing Committee on Economics has
received submissions and held a public hearing into the Coalition's bill;
several bank chief executives and the Treasurer have commented on
the issue of price signalling;
several academic articles,
and analyses by law firms
have been published.
This chapter examines the current debate, the legislative proposals and
the Committee's view on price signalling. It is divided into three sections
define 'price signalling' and present the main arguments as to
whether it is a problem;
discuss the current provisions of the Competition and Consumer
Act 2010 on contracts, arrangements or understandings that restrict or
affect competition. It then considers the ramifications of the Australian
Competition and Consumer Commission's (ACCC) recent petrol cases for the legal
interpretation of an 'understanding' under section 45(2); and
compare the Government's proposed legislation to prohibit price
signalling with the Coalition's proposal and concludes with the Committee's
view on these bills.
What is price signalling?
Defining 'price signalling' is not straightforward. The term is often
used pejoratively, denoting an anti-competitive conduct, but not all price
signalling will have an anti-competitive intent or outcome. Indeed, public
disclosure of price information is essential to efficient markets. As this
chapter discusses, there is a complex legal debate as to what should be classed
as illegal 'price signalling'. This debate relates to various factors including
whether there is a 'commitment' to act on the information passed, whether the
pricing information is relayed publicly or privately between competitors, and
whether the competitor relaying the information has the purpose as well as the
effect of 'substantially lessening competition'.
Notwithstanding this complexity, a working definition of price
signalling is useful. In broad terms, it refers to one competitor relaying its future
pricing information to another competitor. For example, Bank A announces on its
website that effective from a future date, it may increase its interest rate
for home mortgage loans by one per cent. This is price signalling. Should Bank
B note this information and announce in response that it will either change its
rate or keep it unchanged, this is also price signalling.
Australian academics Dr Rhonda Smith, Mr Arlen Duke and Professor David
Round identify three facets of price signalling. First, it is a form of
communication that is indirect: it is not stating an actual price but
indicating to the market the capacity of a firm to price. They give the example
of a retailer advertising that it will better by 10 per cent a lower price
for an equivalent product found at another store by a customer. Second, the
signal may be intended to convey broad messages beyond consumers to actual and
potential rivals. Signalling does not necessarily involve reciprocity from the
recipient of the signal, although it is expected to achieve a particular
outcome. Third, a firm's conduct may be a signal if it has a track record of
responding in a particular way.
Dr Smith, Mr Duke and Professor Round define signalling as:
...the conveying of information about one or more aspects of
the market to actual or potential market participants (including consumers)
through 'one‑off' acts or as a result of establishing a pattern of
behaviour. Signalling as a means of coordination may be directly about prices
or it may be indirect, for example, by indicating how the signaller will react
in certain circumstances to the conduct of one or more rivals with the aim of
causing rivals to respond in a way that is mutually profit-enhancing.
Price signalling is often identified on a spectrum of coordinated
At one extreme is collusion whereby firms enter into an oral or written
agreement in relation to pricing, market sharing or bidding for contracts. Collusion
is a per se illegal offence in Australia.
At the other end of the spectrum is conduct known as 'conscious parallelism'
whereby profit maximising firms in an oligopolistic market take into account
the expected reactions of their rivals. In this market, the firms are interdependent
and act unilaterally in response to similar cost and demand factors.
'Conscious parallelism' is not illegal.
Between these extremes is conduct termed 'tacit collusion'. This form of
conduct involves no oral or written communication between competitors but does
involve deliberate behaviour intended to coordinate the decision-making of
competitors. Price signalling falls within this category. However, the nature
and effect of price signalling may differ markedly: it may itself be placed on
a spectrum. It can include:
providing information that enables consumers to make better
choices, thereby increasing consumer welfare and encouraging competition;
deliberately limiting the information available to consumers
thereby raising consumers' search costs and reducing competition;
deliberately restricting output or allocating market shares,
thereby increasing firms' capacity to raise prices and narrow competition;
coordinating a move from one consensus price to another by
signalling planned price increases on the internet or in press statements, and
thereby lessening competitive tension in the market.
The banks' understanding of 'price
The Committee sought the views of the major banks on the issue of price
signalling. The following comments give a sense of what the banks understand by
'price signalling', whether they believe it occurs in the banking sector and
whether it should be explicitly prohibited by law. (The banks' views on the
proposed price signalling legislation are discussed later in the chapter.)
Mr Ralph Norris, Chief Executive Officer of the Commonwealth Bank, was
asked whether he understood price signalling to mean 'merely making predictive
statements about possible future movements in rates'. He responded: 'I do not
see that as being price signalling'.
Another Commonwealth Bank officer was adamant: 'we do not price-signal, and we
absolutely have not had private discussions between banks about pricing'.
Westpac CEO Ms Gail Kelly told the Committee that price signalling was
not occurring in the Australian banking industry and that Westpac was 'clearly'
against any kind of price collusion or any sort of price signalling.
ANZ CEO Mr Mike Smith broadly defended his right to talk on interest
rates and pricing issues. He made no distinction, however, between general
commentary on these matters and public statements about the bank's pricing
intentions, nor did he distinguish between current pricing and future pricing
statements. Mr Smith did emphasise that the public comments he might make on
pricing matters are not intended to be price signalling. As he told the Committee:
It is right to be able to have an opinion on these things.
Any of these comments, certainly from my perspective, were not meant to be
price signalling. I do not care what the other banks do as long as we can
Why is price signalling a problem?
What is the 'mischief' in price signalling? In other words, where should
the line be drawn between a healthy disclosure of information to the market and
anti‑competitive conduct? These are fundamental, yet vexed questions.
Mr Brent Fisse argued that 'distinguishing between oligopolistic
interdependence and unjustified coordination of market activity by competitors
is probably the toughest challenge in competition law'. He added: 'satisfactory
approaches have yet to emerge anywhere in the world'.
Mr Smith's comment
A significant point of reference for the Committee in terms of
identifying price signalling and why it is can be harmful was a comment
reported in The Australian in November 2009 by Mr Smith. He was reported
as saying that while he would be 'reluctant' to increase home loan rates above
the Reserve Bank's rates, if other banks moved their rates outside moves by the
RBA, he would not be 'stuck on my own'.
The question the Committee put to some witnesses was whether this statement
constituted 'price signalling' and whether legislation is needed to prohibit
this type of statement.
The ACCC identified Mr Smith's comment as an example of price signalling
but noted that it is not prohibited under the current law.
The ACCC Chairman, Mr Graeme Samuel, told the Committee that the type of
comment made by Mr Smith constitutes a 'softening up' of the market: it effectively
signals to ANZ's competitors that if they increased their rates, they would not
have to worry about losing market share to ANZ. Mr Samuel argued that this
conduct removes the uncertainty associated with true competitive tension and
should therefore be prohibited. He observed that while information on prices in
advance of time can in one sense be seen to be useful, in most cases 'the vast
value of its usefulness is in allowing competitors to know what you intend to
A pertinent question is:
Why would someone say what was said, other than for the
purpose of signalling perhaps to their competitors what their behaviour was
going to be in relation to increases in bank housing loan interest rates?
Other witnesses were more circumspect about Mr Smith's intent and the
need to prohibit this type of comment. Ms Sharon Henrick, a partner at
Mallesons Stephens Jaques, believed that Mr Smith's purpose and intent in
making the comment is unclear.
Mr Brent Fisse told the Committee that in his view, it is 'very marginal' as to
whether the type of comment made by Mr Smith should be prohibited. Moreover, he
...whether in any event it should be a matter of priority for
the ACCC to be taking enforcement action in that kind of case, particularly
given that the same outcome could be achieved in other ways—for example, by making
a continuous disclosure statement in a rather more skilful way than was made by
the CEO on that particular occasion, as reported by The Australian in
2009. It is a marginal case. The ACCC should focus much more obviously on stark
cases of price fixing, of which there are still many recorded instances in the
Associate Professor Frank Zumbo identified price signalling as a symptom
of the lack of 'real, quality, intensive competition'. He elaborated:
The underlying problem is the greater concentration of the
market that we have seen, the increasing concentration we have seen. Where you
have a highly concentrated market you do have a problem with price-signalling,
but the price-signalling is a reflection of the highly concentrated market.
Nonetheless, in an oligopolistic market, Associate Professor Zumbo recognised
the potential anti-competitive effect of price signalling. He identified the
harm as a form of collusion:
I believe the evil in relation to price signalling is that
you have one competitor basically telling another competitor in a variety of ways
that if that other competitor behaves in a particular way on price, the
competitor making the comment will also behave in a particular way. That is why
price-signalling legislation has to be highly targeted to the particular
mischief that we are concerned with.
Other witnesses argued that the debate on price signalling is misguided.
Professor Tom Valentine, notably, described the 'whole discussion' on
signalling as 'ridiculous' given that the banks already know what each others'
funding costs are. He told the Committee:
They know what they are going to charge, roughly, and I do
not see why we should stop consumers getting important information which might
be useful to them in deciding, for example, what size mortgage they should be
applying for. Let’s face it: the Reserve Bank was able to predict what was
going to happen to the banks’ cost of funds and therefore to the charges. It
expected that they would put up their rates by more than the increase the bank
made in the cash rate. Consequently, we would not be surprised if the other
banks had that sort of information.
The Committee notes that while Professor Valentine may well be correct
that the banks have access to each others' funding information, his observation
misses the point. The concern with price signalling as a form of
anti-competitive conduct is not whether the banks are aware of each others'
cost of funds, but the message that specific comments about a competitor's
future pricing intentions may have on competitive tension in the market. Further,
Mr Smith's comment was not a general reference to his competitors' higher
funding costs but a specific observation about where he would position his bank
on interest rates should his competitors move theirs.
The need for the banks to provide
Various submitters and witnesses emphasised that the banks (as with
other companies) have a legitimate and important role in informing the market
about their pricing. They extended this defence by arguing that tighter
prohibitions on price signalling would effectively end banks' public comments
on their prices and strategies.
The Commonwealth Bank's CEO was questioned over a comment he reportedly
made in August 2010 that the Commonwealth Bank was likely to raise its interest
rates above any Reserve Bank cash movements. He responded that the comment was
not intended as price signalling and that all bank chief executives have made
public statements about their funding costs. He told the Committee that there
are legitimate reasons to offer this type of economic commentary about interest
One of his colleagues argued that restrictive price signalling
provisions would prevent the banks from explaining their pricing structures and
the cost of their funds:
We are all competing for funds in the same market and the
costs are going up. Everybody has got different funding structures, and you
will note that the different banks put up their rates by different amounts
presumably because their funding costs are a little different, but at the end
of the day all that we have tried to explain—and interestingly I think you have
done a very good job of pointing this out as well—is that our costs are going
up. There is a risk clearly with this legislation that we will not be able to
explain that as clearly in the future because it will be seen to be price
signalling. But from our investor point of view and our continuous disclosure
point of view we think it is important that we are able to explain what is
happening with our business, and obviously you believe that as well from the
point of view of the Australian public understanding these costs.
Mr Smith also defended the banks' public statements about interest
rates. He reasoned that:
It would be rather unusual if I were asked my views on
interest rates, or the likely movement of interest rates, or the interest rate
environment or foreign exchange—what is the Aussie dollar doing?—unless I could
actually see exactly what I could and could not say.
Suncorp Bank's CEO was another to express his concern at the possible
impact of legislation to prohibit price signalling on the capacity of the banks
to provide information to the market. He told the Committee:
...the proposed legislation against price collusion stops the
industry commentating and commenting on interest rate and market movements,
preventing education of the community about interest rates and the factors that
go into product pricing and exacerbating a one-sided debate.
The Australian Bankers' Association (ABA) has argued that not only would
tighter legislation on price signalling stop the flow of information to the
market, it could lead to consumers making bad decisions regarding their product
or loan choices. The banks would not be able to correct misinformation and
provide facts about banking services and markets.
The ABA noted that individual banks and the Association 'are constantly
facing inquiries from journalists, politicians and bank customers seeking a
response to comments, allegations or analysis regarding banks' funding costs
and other pricing‑related issues'. Further, it observed that many of
these inquiries stem from comments or analysis from parties other than the
banks themselves, such as the RBA Board Meeting minutes and comments from
politicians, media commentators and academics.
The ACCC's response
The ACCC took issue with what it saw as some of the more 'outrageous'
comments that legislation to prohibit price signalling would stop the banks
from making any public comment. Mr Samuel emphasised the distinction between forecasting
by individual banks of what they intend to do with their interest rates on the
one hand, and discussing interest rates and economic conditions in general
terms on the other.
He drew the Committee's attention to the following three scenarios:
One is an after-the event commentary and discussion as to why
it is that bank A has moved its interest rates. We have done so because there
are prospectuses et cetera and therefore we have had to move our interest rates
in accordance with what has just been announced. That is perfectly legitimate. The
second is to discuss beforehand where, generally, economic conditions may be,
how bank economists and even bank CEOs say, ‘Look, we think that economic
conditions are such that we think that the cash rate might move in certain
directions.’ That again would appear to be perfectly legitimate. Where we get
into some difficulties is when a bank CEO or others within the bank say, ‘We
are not sure what the Reserve Bank will do next week, but we are saying now, ahead
of time, “If the Reserve Bank moves by 25 basis points, it is almost certain we
are going to move beyond that.’”
The Committee finds these distinctions very useful. They have not been
recognised in the recent commentary expressing concern that signalling
prohibitions may muzzle the banks from making any public comment on funding and
interest rates. The precise form of the legislation and the courts' subsequent
interpretation of the provisions are another matter (see below). Nonetheless,
the ACCC's comments on the issue have been important to highlight the nature of
comments that, in its opinion, should fall foul of the law.
Can price signalling be
There has also been some comment that signalling can have a
pro-competitive effect. Professor Michael Jacobs and Mr Bill Reid recently presented
a scenario involving four banks.
Bank A publicises that it will increase its interest rate for mortgage loans by
50 basis points. Bank B learns of this but makes an announcement that it has no
intention of raising its rates. Banks C and D subsequently announce that they
will also keep their rates unchanged. Finally, Bank A announces that it has
changed its mind about the contemplated increases and will also keep its rates
Professor Jacobs and Mr Reid make the following points in defence of the
banks' conduct in this case:
the signalling of price intentions was required by Bank A to
inform customers of rate changes 'per its prevailing standard form loan
the signalling by Banks B, C and D may have been intended to win
customers from Bank A—a 'legitimate and desirable outcome';
the signalling exposed disagreement among the banks, suggesting
that each was acting independently of the others; and
when the signalling ended, the banks' rates remained at the
pre-signalling level—had Banks B, C and D remained silent, they could have
increased their rates under the cover of Bank A's initial announcement.
This hypothetical example assumes Bank A is contractually obliged to
inform customers of rate increases it is contemplating but then does not
actually do, which would be rather unusual. And if Bank B had instead responded
to Bank A's signal by saying it too would increase interest rates by 50 basis
points, then Banks C and D may well have jumped on the bandwagon and customers
would have been worse off. Contrast to the case where price signalling is not
allowed. Bank A would then be more reluctant to announce an increase in its
rate. If Banks B, C and D did not follow, it would lose customers and likely be
forced to lower its rate back down.
Mr Cassidy was asked whether price signalling could be competitive if a
bank signalled an increase in its interest rates by less than what it
anticipated the Reserve Bank's was going to move. Mr Cassidy responded:
That can be just as deleterious to consumers. It may be in a
context where several of the banks are worrying about market shares and
contemplating not increasing their interest rates by as much as the Reserve
Bank. Again that could be an attempt by that particular bank to, if you like,
limit the extent to which their competitors hold their rates down. So it can work
on the down that way just as much as on the up.
The current law: a contract,
arrangement or understanding
Section 45(2) of the Competition and Consumer Act (formerly the Trade
Practices Act 1974) states that a corporation shall not make a contract or
arrangement, or arrive at an understanding if it has the purpose, or would have
or be likely to have the effect, of substantially lessening competition. The
starting point for the ACCC in prosecuting a case under this section is to show
that a contract, arrangement or understanding has been entered into. However,
in the past six years, there have been two significant decisions of the Full
Federal Court that have, at least in the ACCC's view, raised the required proof
that an 'understanding' has been made.
The Apco case
The 2005 Ballarat petrol case Apco Service Stations Pty Ltd v ACCC
was significant in defining an 'understanding' for purposes of section 45(2) of
the Trade Practices Act. The ACCC's case relied heavily on
circumstantial evidence involving records of telephone conversations between
the parties, and correlations between these calls and the timing of petrol
price rises. The ACCC instituted proceedings against sixteen respondents—eight corporations
and eight individuals—for price fixing conduct in the Ballarat retail petrol
market over an eighteen month period from June 1999 to December 2000. Of these,
four corporations and five individuals either admitted or did not contest the
ACCC's claims and proceeded to penalty hearings before the Federal Court. The
remaining four corporation-34s and three individuals proceeded to trial before
Justice Merkel found there was no expectation by the initiating
respondents that Apco's readiness to receive calls meant it would match price
increases advised by the initiating respondents.
The Full Court said there was no more than a hope or factual expectation that
Apco would act in a particular way, and that fell short of an understanding.
The Full Court thereby ruled that a commitment by a party to a particular
course of action or inaction is necessary to establish an 'understanding'
within the meaning of section 45(2) of the Trade Practices Act. The
ACCC's case failed because it did not prove the requisite commitment.
The ACCC sought special leave to appeal the Full Court decision to the
High Court, however this application was dismissed.
Geelong petrol case
In ACCC v Leahy Petroleum Pty Ltd & Ors,
Justice Gray found that alleged price fixing arrangements arising out of
disclosures of information between petrol retailers in the Geelong area did not
constitute an 'understanding'. He noted that parallel conduct, even where
conscious, lay outside the scope of an understanding.
The ACCC told the Committee that in the Geelong petrol case:
...a group of petrol companies and petrol retailers in the
Geelong region were passing on to one another their pricing intentions. They
were not innocent discussions talking about the footy and the weather and
saying, ‘Oh, by the way, I’m increasing my price to $1.45 a litre this
afternoon,’ because they were using code in these discussions. Admittedly the
discussions then looked a bit odd but nonetheless they were using code in the discussions...and
yet the court ruled. We took legal advice on whether we had grounds to appeal,
and the legal advice we had was that we had no grounds to appeal following the
Apco decision; the court ruled that that behaviour was not unlawful.
Is the current law adequate to prohibit
The Committee received some evidence that section 45(2) of the Competition
and Consumer Act is adequate to deal with anti-competitive signalling. The
legal firm Mallesons Stephen Jaques told the Committee that in their opinion,
the current wording of the Act is sufficient for the ACCC to prosecute one or
more competitors for exchanging information about a future price. What needs to
be proven, they argue, is that:
(i) one or more competitors was attempting to arrive at an understanding
that had the purpose or likely effect of fixing, controlling or maintaining a
price or a component of a price; or
or one or more of the competitors was attempting to arrive at an
understanding to exchange information about future prices and the understanding
had the purpose, or would be likely to have the effect of substantially
lessening competition in a market; or
two or more competitors had arrived at an understanding to exchange
pricing information, and the understanding to exchange the pricing information
had the purpose or would have likely effect of substantially lessening
competition in a market; or
two or more competitors had arrived at an understanding that had the
purpose or likely effect of fixing, controlling or maintaining a price or a
component of a price.
Mallesons' submission notes that in the first two of the above cases (i
and ii), the current 'law of attempts' requires both an intention to signal a
price and an express or implied suggestion that the recipient of the
information might act on the information that has been signalled. In the last
two cases—an understanding to exchange information (iii and iv)—the submission
notes that under current law, 'a mere expectation on the part of the party who
signals the price is not enough to establish a commitment to act'.
The ACCC disagreed with Mallesons' analysis, arguing that there is
conduct that goes beyond the four scenarios which should be capable of being
subject to the law. Their Chairman elaborated:
The problem is the requirement of a commitment as summarised
in Apco and as affirmed by the High Court. Let me take the example of a group
of competitors sitting around a table when one of them says, ‘You know it would
be really useful if we were to let each other know what we’re doing in our
prices,’ and the others say, ‘Yes, that would be a useful exercise,’ but that
is as far as they go. That does not amount to a commitment. Indeed it may be
that in those circumstances they go away and they do exchange prices as a matter
of process but on the few occasions they just do not cooperate; they do not do
it. That, if you like, creates the perception that there was in effect no
commitment but there is a wink and a nod. That is not a commitment that is
sufficient to be covered by the current law.
In relation to the Apco case, Mallesons' submission queried whether the
finding demonstrates a current gap in the law, 'or whether the judgment was due
to the way the ACCC pleaded its case'.
Ms Sharon Henrick, a partner and convenor of the Competition Law Group at
Mallesons, told the Committee:
Without wishing to criticise the Commission for the way it pleaded
the Apco case, we considered that if the Commission had pleaded that case
differently it would have been able to succeed against Apco and Apco’s managing
director who received the information about future prices. In particular, we
believe that if the Commission had pleaded an understanding to exchange
information or to give and receive information with an anticompetitive purpose
or with an anticompetitive effect—so either of those things—it should have won
the case against Apco and Apco’s managing director.
In evidence to the Committee, Mr Brent Fisse argued that in his view,
and that of Ms Henrick, not enough work has been done to examine the reasons
that the ACCC enforcement actions in cases such as Apco and Leahy did not
succeed. He queried whether or not the evidence that was put forward by the
ACCC was done so in a way that corresponded adequately to the relevant theory
of the case.
Unsurprisingly, the ACCC disagreed. Mr Samuel told the Committee that as
a result of the Apco case, a finding of price signalling in contravention with
the current law would only be in a case:
...where Banker A and Banker B agree that they will not only
exchange information but that they will also say to each other, ‘I’m lifting
mine by 45 basis points next week, will you do the same?’ and the other says,
‘Yes, I’ll do the same.’
The ACCC's 2007 proposed amendment
The ACCC has argued since these rulings that the requirement to prove a
commitment makes it difficult to show there is a contract, arrangement or
understanding within the meaning of the cartel provisions of the Trade
Practices Act. It noted that some of its investigations into alleged cartel
conduct could not be taken further where the parties have denied a commitment,
notwithstanding their acknowledgement to have met and exchanged information on
In its 2007 report on petrol prices, the ACCC expressed concern that these
...disclose a subtle but significant shift in the nature of
the commitment that must be found to establish the existence of an understanding.
Earlier decisions of the Federal Court interpreted the term to include an
expectation regarding future conduct consciously or intentionally engendered in
one person by the words or conduct of another person. However, the more recent
decisions suggest that an understanding will not be regarded as having been
reached in those circumstances; rather, there is a need for at least one of the
parties to give or accept a commitment, obligation, undertaking or assurance
that they will act in a certain way.
In the petrol prices report, the ACCC proposed an amendment to section
45 of the Trade Practices Act to clarify the meaning of the term 'understanding'.
It sets out a number of factual matters the court may take into account in
determining whether an understanding has been arrived at and specifically
provides that it is not a necessary element of an understanding that the
parties to the understanding be committed to giving effect to it.
Treasury's discussion paper
In January 2009, Treasury released a discussion paper and called for
submissions on the meaning of 'understanding' in section 45 of the Trade
Practices Act. The discussion paper asked, among other matters, whether the
current judicial approach to the interpretation of 'understanding' limits the
ability of the Trade Practices Act to address properly anticompetitive
practices and if so, whether there is a need to clarify or define the meaning
A submission of particular note to the Treasury inquiry was made by Dr Caron
Beaton-Wells and Mr Brent Fisse. Their submission argued that case law has
failed to provide a clear conceptual definition of the conduct that should be
caught by the requirement of a 'contract, arrangement or understanding' under section
45 of the Trade Practices Act. It also noted that economic theory
provides guidance on where the line should be drawn conceptually between legal
and illegal coordination between competitors. The submission claimed that in interpreting
the word 'understanding' in section 45 of the Trade Practices Act consideration
should be given to the approach in the United States and the European Community,
particularly the concept of 'concerted practice' under EC law.
A 'concerted' practice'
A 'concerted practice' is harmful to competition because it enables
competitors to determine a coordinated course of action...and to ensure its success
by eliminating any uncertainty as to its competitors' conduct.
It is not a recognised concept in Australian competition law.
Dr Beaton-Wells and Mr Fisse's submission to Treasury's inquiry noted
that under Article 81(1) of the European Community Treaty, there is a
distinction between 'concerted practices' and an 'agreement'. The aim of this
provision is to prevent firms from evading the application of the law by
colluding in a manner that falls short of an agreement.
The submission observed that in general, the standard required to establish a 'concerted
practice' is much less demanding than that required to establish an 'agreement'.
A 'concerted practice' does not require any element of commitment'. Rather,
what needs to be shown is:
some form of contact between competitors (which may be indirect or weak
as, for example, contact via a publicly announced price increase);
a meeting of minds or consensus in relation to cooperation which may be
inferred from mere receipt of information; and
a relationship of cause and effect between the concertation and the
subsequent market conduct.
Dr Beaton-Wells and Mr Fisse emphasise that the EC law concept of 'concerted
practice' is intended specifically to catch tacit collusion or facilitating
practices. Significantly, they contend that it is likely that the EC concept of
a 'concerted practice' would catch the behaviour alleged to constitute an 'understanding'
in the Apco and Leahy cases. Specifically, they note that in these cases:
...there would be no need to establish commitment on the part
of the respondents to increase prices in accordance with the signals provided.
Nor would it be necessary to show that there was a reciprocal or two way exchange
of information – the concept of ‘concerted practice’ covers the situation where
one party is active in disclosing information and another is passive in
receiving or accepting it. Thus, for the purposes of finding those respondents
who conveyed the information about changes in petrol prices liable, it would be
sufficient to show that they did so with the purpose of influencing their
competitors to follow the signalled price rise (even if in some cases, they
failed to achieve the desired effect). For the purposes of finding the
recipients of the information liable, it would be sufficient to show that their
conduct was influenced even if merely by aiding their decisions as to whether
or not to follow the signalled price.
Treasury has not as yet responded to the submissions to its discussion
paper. Some have argued that it should do so before proceeding with legislation
to address price signalling.
In their submission to the Government's Exposure Draft, Dr Rhonda Smith, Mr
Arlen Duke and Professor David Round argue that the government should not rush
to introduce price signalling laws before considering other options such as
those raised by the discussion paper. They also maintain that the proposals to
lower the bar to prove an 'understanding' and the proposal to introduce price
signalling laws should be introduced together.
The ACCC's current view on price
The ACCC told the Committee that signalling may involve no underlying contract,
arrangement or understanding but can, nonetheless, have exactly the same
outcome as the more traditional cartel type behaviour.
It thereby argued that in terms of addressing signalling, clarifying the
meaning of the word 'understanding' in section 45 is not the key. As Mr
Cassidy explained to the Committee:
...there is a class of conduct—a not insignificant class of
conduct—that we simply cannot get to with the law as it currently stands but
which is unlawful in other jurisdictions.
In terms of addressing signalling, the ACCC appears to have shifted its
focus from a clearer definition of 'understanding' in the context of section
45(2) of the Competition and Consumer Act to an EC-style provision on
concerted practices. Mr Samuel noted in his evidence that the ACCC had
'had another look' at the issue of signalling and considered the concerted
practices approach recommended by Dr Beaton-Wells and Mr Fisse.
In this context, Mr Cassidy contrasted Australian provisions with those
currently operating in the EC and the UK:
We particularly look at the EC and the UK, where there is a
solution, we believe, and the solution has been in existence ever since the EC
was formed. It is in the original article 81 of the treaty which formed the EC.
The sky has not fallen in in the EC or the UK because of this particular piece
of law. Nonetheless, it is operative. We have very recent cases that we can go
to which...are unlawful in the UK and unlawful in the EC but would not be
unlawful here. We believe there is a way of...getting at this sort of
behaviour, this sort of conduct, without affecting legitimate market conduct.
It is an area where you need to be careful, admittedly, because there are some
fine lines between what you might call questionable conduct and quite
legitimate conduct, but nonetheless we believe it can be done.
The proposals for reform
As noted earlier, both the Opposition and the Government have proposed legislative
reforms to address price signalling. In November 2010, the Opposition
competition spokesman, the Hon. Bruce Billson MP, introduced the Competition
and Consumer (Price Signalling) Amendment Bill 2010 to make anti-competitive
price signalling unlawful. On 12 December 2010, the Government published the
Competition and Consumer Amendment Bill (No. 1) 2011 as an Exposure Draft for
comment by 14 January 2011. This section looks at these proposals and some of
the commentary on their merits and shortcomings.
The Government's Exposure Draft
The Government's Exposure Draft Bill contains two strict liability (or 'per
se') prohibitions. It contains a proposed prohibition on making a private
disclosure of pricing information (which includes pricing information in the
public domain) to an actual or potential competitor.
In terms of public disclosure and/or disclosure of information beyond pricing,
the bill prohibits disclosing information about prices, capacity or strategy
for the purpose of substantially lessening competition (SLC).
This second prohibition, the SLC prohibition,
clarifies that a corporation's purpose may be inferred from surrounding
circumstances. The Court may have regard to a non-exhaustive list of factors
for the purposes of determining whether a corporation had the requisite purpose
of SLC when making a disclosure. These factors are: whether the disclosure was
a private disclosure to competitors; the degree of specificity of the
information; whether the information relates to past, current or future
activities; how readily available the information is to the public; and whether
the disclosure is part of a pattern of similar disclosures by the corporation.
The Explanatory Note accompanying the Exposure Draft bill described
private disclosure of pricing information as 'most readily distinguishable from
benign or pro-competitive forms of conduct'. It noted that it is difficult to
ascertain a rationale for disclosing pricing information to competitors in a
private manner, other than to seek to facilitate prices above a competitive
level. The Government also argues that this prohibition will eliminate a key
element of the communications required for setting up, monitoring and
sustaining cartel behaviour.
The SLC prohibition captures a range of disclosures beyond those relating
to pricing information and recognises the possibility that anti-competitive
pricing and information disclosures can be made in public. The Government has
justified the prohibition on the basis that the disclosure of a broader range
of strategic business information can lead to anti-competitive outcomes. It
justifies the 'purpose test' on the basis that it will 'limit the possibility
of capturing pro-competitive information disclosures'.
The Government has stated that:
The Government has received independent legal advice that
considers it would not be appropriate to ban the communication of pricing
intentions that have the effect or likely effect of substantially lessening
competition, as opposed to the purpose. Such a prohibition would create
substantial uncertainty, because market participants could not know in advance
how their competitors will react to their public statements, and therefore what
the effect or likely effect would be.
Proposed amendments to the Exposure
In March 2011, Treasury told the Committee that the Government was
considering introducing an authorisation and notification regime to accompany
the Exposure Draft Bill's prohibitions. Banks will not be subject to the
prohibitions when they join together to lend money to large businesses and
during corporate workouts when companies are unable to repay debts. A
notification regime is proposed to allow banks to seek approval from the ACCC
to share their pricing with their competitors if they believe there is a net
public benefit in the information being exchanged (see paragraph 8.80).
Criticism of the government's bill—the
per se prohibitions
The central criticism of the Government's draft bill is that it risks
prohibiting legitimate commercial activity. Various critiques of the bill refer
to the potential for 'overreach' and 'unintended consequences' from the per se
prohibitions. As Mr Fisse told the Committee:
There is no requirement of proof of an agreement or an
understanding—there is no requirement of proof of collusion, in other words—and
that is the fundamental tack that has been taken in the exposure draft
provisions. That approach, in our view, is fundamentally mistaken, because once
one moves away from a requirement of collusion, deliberate coordination or,
under the current law, contract arrangement or understanding, and focuses
merely on information disclosure, it is inevitable that the prohibitions are
going to suffer from extreme reach—in our view, unjustified overreach.
In their submission to the Treasury inquiry, Dr Beaton-Wells and Mr
Fisse describe the prohibitions in the Exposure Draft as 'novel' and note that
they depart 'radically' from the law in other jurisdictions. They criticise the
narrowness of the bill, arguing that prohibiting a specific form of conduct
(price signalling) in a specific sector (banking) runs the risk that courts
will not focus on the legislative intent of the provision.
In their view, both the per se prohibitions require clarification. The private
disclosure prohibition must include distinctions on whether the information
relates to past, current or future behaviour, whether it is confidential,
whether it involves commitment, whether it is verifiable and whether it
involves aggregated or disaggregated data. The SLC prohibition should focus on
whether or not a competitor is acting strategically to coordinate market
conduct with a competitor.
The Law Council of Australia has argued that the private disclosure
prohibition requires significant amendments to avoid unintended consequences.
It recommended prohibiting disclosures that are made to competitors for the
'purpose of, or with the effect or likely effect of, substantially lessening
competition'. It also it emphasised the need for a defence of legitimate
Ms Henrick of Mallesons Stephen Jaques also warned the Committee of the unintended
consequences of the Government's legislation. She argued that the proposed
legislation would pose 'significant and unnecessary' risks for the way
alliances and consortiums operate given they exchange information about prices.
Further, vertically integrated businesses supplying goods or services to their
competitors routinely need to discuss prices, but they are not protected by the
bill's proposed exemptions. Ms Henrick also noted that the Government's
bill would pose unnecessary risks for many information vendors, such as firms
that provide estimates of market shares.
Another criticism of the Government's proposed legislation is that the
SLC test is too difficult to satisfy. Mr Fisse argued that there are practical
concerns with the SLC test. Apart from being 'notoriously vague', he emphasised
that the test would require proof of a direct link between the signalling and
the effect on the market. In the case of a bank announcing a future mortgage
rate increase, the SLC test would not be passed if it is likely that the
information about the future price would have become known to the market in
other ways. He also noted that the 'purpose' test of the prohibition can be
avoided by the defendant drawing a distinction between the purpose of the
disclosure and the purpose of the conduct to which it related.
Dr Smith, Mr Duke and Professor Round have also criticised the per se
prohibitions in the Draft Exposure Bill. In their submission to Treasury, they
recommend that the bill be amended to accompany the prohibitions with an anti‑competitive
effects test through a requirement that the conduct has the effect or likely
effect of substantially lessening competition. They note that as signalling
conduct can have both positive and negative effects on competition, it is
important that the effect of competition is recognised to guard against overreach.
The academics also insist that an authorisation is not an adequate check
on per se prohibitions. Not only do authorisations take time, but they are:
...not intended to permit policy makers to adopt overly broad
laws knowing that a party who is inappropriately caught by such a law is able
to escape the imposition of unreasonably [sic] penalties by lodging a costly
authorisation application with the ACCC.
The Law Council of Australia has also argued that reliance on an authorisation
process is inappropriate to ensure that legitimate information disclosures do
not breach the prohibitions.
It also cited the cost and time associated with the process.
The Committee received some comment that the legislation should be
applied to all sectors of the economy, not just the banking sector. The ACCC,
notably, told the Committee that:
The general principle of the Trade Practices Act...is
that it should apply with very rare exceptions, such as telecommunications,
across all sectors of industry and commerce. We consider that this is an issue
that will affect a variety of sectors in industry and commerce in Australia and
ought to apply across the board.
While the ACCC's preference is for economy-wide legislation on
signalling, given the proposed legislation focuses on the banking sector, it
supports expansion to other sectors through regulation:
...we would think it should apply more broadly, but equally
if there is going to be some sort of phased mechanism for coverage we think a
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.
A further criticism of the Government's Draft Bill is that it will be
easily circumvented. Mr Fisse argued in his submission to this inquiry that the
narrow focus of the bill creates opportunities for companies to sidestep the
provisions. The prohibition against public notification by a competitor of a
future price increase (the SLC prohibition) could be avoided by notifying
customers privately and leaving it to the media to report the information.
Moreover, the focus on price signalling may force companies to examine other
facilitating practices such as price matching or use of non-price terms and
Before being appointed an ACCC Commissioner, Dr Jill Walker wrote that
the problem with making the private exchange of pricing information a per se
prohibition is that it:
...seems likely to simply result in the modification of
conduct to publicise the price exchanges, thereby lifting the conduct out of
the per se category, because it would be too difficult to draw a bright line
between those public actions which should be condemned per se and those which
The Committee strongly supports these critiques. It believes that the
per se prohibitions in the Government's Exposure Draft Bill run the risk that legitimate
communication of pricing information that is not anti-competitive in its intent
or its effect will be captured. The Committee argues that it is better for a
bank engaging in anti-competitive price signalling to go undetected than it is
for a bank conducting legitimate communications to be inappropriately penalised.
In this vein, the Committee also contends that the government's over-reliance
on the proposed new ACCC notification regime as a solution to the problems in
the bill is likely to be cumbersome and restrictive for the banks, as well as a
burden on the ACCC. The far better alternative is to replace the prohibitions
with a competition test that applies to both public and private communications.
The Government's bill
In March 2011, the government introduced into the House of
Representatives its bill on price signalling. The EM accompanying the bill
noted that many stakeholder concerns relating to the draft bill had been
considered and addressed.
The main changes to the bill from the Exposure Draft are some new exceptions to
the prohibitions as well as a notification process to enable parties to obtain
immunity from the per se prohibition.
However, the bill does not abolish the per se prohibition as several
stakeholders had recommended. The government bill retains (from the Exposure
Draft) the SLC prohibition. The EM responded to stakeholder concerns that this
prohibition should be limited to confidential and prospective pricing
information by noting that disclosures will only be prohibited if a business
has the requisite (substantial) purpose of substantially lessening competition
in making the disclosure.
The EM also recognised stakeholder concerns that the SLC prohibition
does not contain the requirement that the conduct has 'the effect, or likely
effect of substantially lessening competition'. It claimed that an effects test
is 'unwarranted at this time'. It added: 'that the disclosure must be made for
the purpose of SLC recognises that there may be legitimate and pro-competitive
reasons to make such disclosures'.
The EM to the government's bill states that a number of exceptions to
the prohibitions will be made available. In terms of the per se
prohibition, disclosures relating to pricing information regarding goods or
services will be exempt if the information relates to goods or services
supplied or likely to be supplied, acquired, or likely to be acquired by the
corporation from the recipient. In terms of exceptions applying to both the
prohibitions, the bill amends the Exposure Draft by adding three new
disclosures made for the purpose of complying with the continuous
disclosure obligations within the Corporations Act 2001;
disclosures made in the course of engaging in conduct that is
covered by an authorisation; and
disclosures made in relation to a collective bargaining notice,
if the disclosure is made to one of the contracting parties.
As flagged with the Committee (see paragraph 8.62), the Government's
bill expands the existing notification process to allow parties to notify for
conduct which falls under the per se prohibition. It will allow parties
to obtain immunity through the lodgement of a notification of the conduct with
the ACCC which has 14 days to assess the notice before immunity commences. The
notification process will operate alongside the authorisation process, which
will enable business to obtain immunity from both prohibitions.
The EM clarifies that in the first instance, a regulation 'should be
made to proscribe banks to the prohibitions'. There is capacity for the
regulations to be made to apply to prohibitions to other sectors after further
The EM noted that the use of regulations to give effect to the sector specific
application of the prohibitions gives greater flexibility in applying the
prohibitions to other sectors in the future. All the regulations will be
disallowable instruments and therefore subject to Parliamentary oversight.
The Coalition's bill
In his Second Reading Speech on the Competition and Consumer (Price
Signalling) Amendment Bill (No. 1) 2010, the Hon. Bruce Billson MP told Parliament
that the bill addresses a gap in the current law. He added that this 'gap' has
assumed 'particular salience' in light of the current vigorous debate about the
state of competition in the banking sector and interest rate movements.
Mr Billson explained that the bill's key elements—a purpose and effects
test and the yardstick of 'substantially lessening competition'—are important
to focus on the anticompetitive conduct. In terms of determining the purpose of
the conduct, he noted that:
The bill makes it possible for a court to infer purpose on
the basis of the conduct. This is the ‘if it looks like, walks like, squawks
like and hangs out with ducks, it is fair enough for the court to infer that it
is a duck’ reasoning.
In terms of the 'substantially lessening competition test', Mr Billson
noted that it is a recognised threshold in the Trade Practices Act and was
selected to ensure that the anticompetitive effects manifested in identical
prices or parallel price movements are captured.
The Coalition's bill differs from the government's proposed legislation
in three key respects:
first, whereas the Government's bill has a per se prohibition on
private disclosures of pricing information to competitors, the Coalition's bill
states that the illegality of these private disclosures is dependent on the
purpose of the corporation in making the disclosure;
second, the Government's bill also prohibits disclosure of information
about prices, capacity or strategy for the purpose of substantially lessening
competition. With no effects test, it would be possible to breach both the
prohibitions even if the disclosure has no discernable effect on competition. The
Coalition's bill has both a 'purpose' and 'effect' test: it prohibits communication
of price related information to a competitor for the purpose of inducing or
encouraging the competitor to vary a price, and which is likely to have
the effect of substantially lessening competition in the market for the goods
or services in question; and
third, the prohibitions in the Government's bill relate to
information about pricing, capacity and commercial strategy, whereas the Coalition's
bill relates only to pricing.
The Coalition's bill therefore sets a higher threshold than the Government's
proposed legislation. Not only does it not apply a per se prohibition on
private disclosures, but the proof for an offence for a public disclosure is
that it has both the purpose and the effect (or likely effect) of substantially
lessening competition. This provision guards against the risk—distinct in the Government's
bill—that signalling with a pro-competitive effect could be prosecuted.
Criticisms of the Coalition's bill
In evidence to the House of Representatives Standing Committee on
Economics, the ACCC outlined its objections to the Coalition's legislation.
Mr Cassidy told the Committee that three aspects of the legislation
concerned the ACCC:
first, the bill relates only to price signalling and not to quantity
based offences such as market sharing or collusive tendering;
second, the bill requires both purpose and effect to be shown, 'whereas
the more normal competition provisions...are couched in terms of purpose and/or
effect'. Mr Cassidy explained that the ACCC would normally proceed 'on one or
the other' and the bill thereby establishes a fairly high burden of proof; and
third, as per the Government's proposed legislation, some
signalling conduct should be subject to a per se prohibition. Mr Cassidy argued
that where competitors privately pass between themselves their future pricing
intentions, a per se prohibition should apply.
The Australian Bankers' Association (ABA) has cautioned that the
Opposition's bill could have unintended consequences if it is not carefully
considered. It noted that banks are required to communicate their funding costs
and other price related issues as part of their liaison with the media, the
parliament and their customers. Mr Steven Münchenberg, Chief Executive of the
ABA, has argued that the banks need to comment in the public debate and any
attempt to constrain this participation will mean that the media and other
commentators will be unable to present a balanced view.
The ABA also criticised the Coalition's bill on the basis that it is out
of step with the prohibitions in EU and US anti-trust laws. It argued in its
submission to the House inquiry that the bill's prohibition on unilateral
disclosures (rather than 'concerted' practices) with no requirement of concerted
action or coordination with a competitor is 'unprecedented'.
Mr Münchenberg told the House Committee that it is 'a very, very low threshold'
for an offence 'by just putting out a communication that others may or may not
The ABA disputed the Explanatory Memorandum's claim that 'the Bill will
have no financial impact'. It claimed that this ignores 'significant costs'
that may be incurred due to the ACCC's power to investigate through section 155
of the Competition and Consumer Act. Its submission noted that:
...given the breadth of the proposed prohibition, the ACCC’s
investigation powers would be significantly broadened with the potential for
legitimate disclosures by competitors to be misinterpreted and then
investigated by the regulator on the basis of mere suspicions or allegations, notwithstanding
that the communications were procompetitive, legitimate business practice.
On the basis of the proceeding discussion, the Committee makes the
following observations. The first is to reiterate that legislating to prohibit
anti-competitive price signalling is a difficult and complex matter. Fundamentally,
however, it is important that any proposed legislation recognises that not all
price signalling—whether publicly or privately communicated—will have an
anti-competitive intent or effect. It is important that the banks do not feel
constrained to speak publicly in general terms about the future direction of
The second point is that the Committee believes that there is a need to
address price signalling through an amendment to the Competition and
Consumer Act. It agrees with the ACCC that the Act is currently inadequate
to prohibit statements of the type made by ANZ CEO Mr Smith. This type of
statement, which relays to the market the future pricing intentions of a company,
should be addressed by the ACCC. The Committee agrees with the ACCC that the
courts have ruled in Apco and Leahy that an 'understanding' for purposes of
section 45(2) constitutes more than what is necessary to prosecute a case of
'price signalling'. Regardless of whether the ACCC might have been able to
plead more effectively in the case, this is where the current understanding of
the law stands.
Thirdly, and following from these points, the Committee believes that
the Government's Draft Exposure Bill is poorly drafted and should not contain
per se prohibitions. The Committee contends that a new provision addressing
price signalling in the banking sector must contain a competition test in
language that is familiar to the Competition and Consumer Act.
Accordingly, the Committee recommends that the Government amend its proposed
draft legislation to prohibit price signalling with 'the purpose, effect or
likely effect of substantially lessening competition in the market'.
Fourth, the Committee requests that the Government release the
independent legal advice it received that it would not be appropriate to ban
the communication of pricing intentions that have the effect or likely effect
of substantially lessening competition, as opposed to purpose. It queries why
the provision could not be couched in terms familiar with the Act; namely, 'the
purpose and/or effect or likely effect of substantially lessening competition'.
Subject to the release of the Government's independent legal
advice, the Committee recommends that the Competition and Consumer Act 2010
be amended to include a provision which states that a corporation engages in
price signalling if it communicates future price-related information to a
competitor, and the communication of that information has the purpose, or has or
is likely to have the effect, of substantially lessening competition.
Finally, the Committee notes that the banks' understanding of price
signalling, and the reason why it should be subject to a competition test, is
quite limited. It is important that any legislation is accompanied by clear explanations
providing examples of signalling that would be in breach of the law and
assurances on the types of statements that remain legal.
The Committee recommends that an amendment to the Competition
and Consumer Act 2010 to introduce a price signalling provision should be
accompanied by ACCC guidelines providing:
examples of the type of communication that would fall foul of
examples of the type of communication that would not fall foul of
this provision; and
the protection offered by the exemptions.
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