Chapter 1 Introduction
Background
1.1
On 24 November 2010 the Selection Committee referred the Competition and
Consumer (Price Signalling) Amendment Bill 2010 (the first Bill) to the
committee for inquiry and report.
1.2
The first Bill was introduced as a Private Member’s Bill by the Shadow Minister for Small Business, Competition Policy and Consumer
Affairs, the Hon Bruce Billson, MP.
1.3
While the review of the first Bill was being conducted, the Government
released its own price signalling legislation. On 12 December 2010 the
government released for public comment an exposure draft dealing with price
signalling. Following its consultation, the government tabled the Competition
and Consumer Amendment Bill (No.1) 2011 (the government Bill) on
24 March 2011. The Explanatory Memorandum (EM) to the government Bill
states:
Anti‑competitive price signalling and information
disclosures are communications between competitors which facilitate prices
above the competitive level and can lead to inefficient outcomes for the
economy and reduce wellbeing for consumers. They fall short of cartel behaviour
but can have similar effect. Anti‑competitive price signalling and
information disclosures can occur as part of a wider cooperation agreement, or
as a stand‑alone practice absent of an explicit cartel arrangement.[1]
1.4
On 12 May 2011 the Selection Committee referred the government Bill to
the committee for inquiry and report. The government Bill was introduced by the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP.
1.5
The committee has resolved to scrutinise the two bills together.
Purpose and overview of the first Bill
1.6
The first 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.’[2]
1.7
The first Bill creates a new provision to make anti‐competitive price
signalling unlawful. It is designed to operate within the framework of the Competition
and Consumer Act 2010 (which was the Trade Practices Act 1974 prior
to 1 January 2011) and ‘to respond to repeated calls from the ACCC for
Parliament to address this “gap” in Australia’s competition “tool kit.”’[3]
The EM states:
Price signalling is a facilitating practice by which
corporations inform their rivals about price actions and intentions, so as to
eliminate uncertainty about the price of their goods or services, thus reducing
the inherent risks of competition which would be a feature of a workably
competitive market.
Anti-competitive price signalling is engaged in with the
hope, or even expectation, that competitors will reciprocate in term of the
setting of the price and price-terms and conditions for their goods or
services, although it does not require any commitment from them to do so. The
effect of such behaviour will often be the same as prohibited conduct but is said
by the ACCC to currently not be captured by existing prohibitions.[4]
The EM states that the ‘definition of unlawful anti-competitive ‘price
signalling’ detailed in the Bill contains three elements specifically designed
to ensure that pro-competitive and pro-consumer price-related communication is
not impeded while the anti-competitive price-related communication that
facilitates co-ordination to distort markets and disadvantage consumers is
captured as unlawful.’[5]
1.8
The Bill aims to:
- make it possible for a Court to infer that the purpose of
communication by a corporation about price-related
information was to encourage a rival to vary a price having considered the
evidence, conduct of the parties involved and relevant circumstances;
- define key terms relevant to the operation of the provisions and
where necessary, provides further clarity for terms defined more generally in
the Trade Practices Act, for the purposes of avoiding uncertainty about
the new head of power for the ACCC; and
- provide for the ACCC to receive, consider and grant an
authorisation for conduct that may offend the price signalling prohibition,
where the ACCC is satisfied that the public benefit of authorised conduct
outweighs the likely detriment to the public constituted by any lessening of
competition.[6]
Purpose and overview of the government Bill
1.9
The government Bill aims ‘to enhance the welfare of Australians through
the promotion of competition and fair trading and provision for consumer
protection.’[7]
It does this by amending the existing Competition and Consumer Act 2010
(CC Act).
1.10
The most important amendments in the government Bill involve:
- prohibiting
businesses from making a private disclosure of pricing information to a
competitor;
- prohibiting
businesses from making a disclosure (on a wide range of matters) if the purpose
of the disclosure is to substantially lessen competition in a market;
- ensuring that
prohibitions apply only to goods and services that are specifically prescribed by
regulations and identify exceptions to them where necessary; and
- providing a number of
exemptions to the prohibitions to enable businesses to continue normal
operations, including timely notifications to the ACCC on the grounds of
providing a net public benefit.
Treasury consultations
1.11
The committee received evidence in its submissions that Treasury’s
consultations on the exposure draft led to significant improvements to the government
Bill. For example, the Australian Institute of Petroleum stated:
In light of these issues, AIP and some AIP member companies
made detailed public submissions to the Treasury consultation process outlining
our concerns and suggestions in relation to the exposure draft legislation, and
assuming they will apply to the Australian fuels industry. AIP acknowledges
that the Government, through the consultation process, has taken account in the
Bill of some of the issues identified by AIP and its members, and these changes
will help address some of the unintended commercial consequences for the fuels
industry.
Specifically, these improvements by the Government to the
exposure draft legislation include the exclusion in the Bill of disclosures
relating to: (i) purchases or sale of goods; (ii) by companies to agents; and
(iii) relating to proposed joint ventures.[8]
1.12
The Australian Bankers’ Association (ABA) also recognised that
consultations had improved certainty for business.[9]
The ACCC’s current powers
1.13
The ACCC’s current powers extend to price fixing but not to price
signalling. The ACCC advised that ‘under the existing cartel provision in the
legislation we need to establish that there is a contract, an arrangement or an
understanding between the parties.’[10] Under the legislation
the ACCC would need to establish that ‘there is some form of agreement between
the parties and that there is some measure of commitment.’[11]
However, this can be extremely difficult for the ACCC to prove.
1.14
In 2005 the ‘Apco’ case revealed inadequacies with the ACCC’s
legislation. As a result of ACCC action, a number of petrol retailers in the
Ballarat area were prosecuted. The ACCC alleged ‘that they were passing
information to one another on a confidential basis on what they were proposing
to do with their petrol prices.’[12] However, one of the
respondents in the case, a company called Apco, appealed to the Full Court of
the Federal Court. The argument Apco put ‘was that they were not committed to
the conduct; they received the prices and sometimes they acted on them by increasing
their own price and sometimes they did not.’[13] The appeal by Apco was
upheld on the basis that there was not a sufficient level of commitment on the
part of Apco.
1.15
The ACCC sought to appeal that decision to the High Court but was
refused leave to appeal. The High Court stated that there were no issues of law
that arose out of the Apco case. The ACCC concluded that ‘in our view that
means there has been a significant raising of the bar in relation to what is
required to establish a contract arrangement or an understanding, which is what
we were arguing in this case.’[14]
1.16
In January 2009 the Treasury issued a discussion paper which sought
submissions on the adequacy of the current interpretation of the term
‘understanding’ in section 45 of the CC Act. That process ‘identified that
anti-competitive price signalling and information disclosures were not captured
by the CC Act and rather than amend the meaning of understanding, could be
directly targeted by new prohibitions under the CC Act.’[15]
The Treasury stated:
The Treasury considers that there is a gap in the
effectiveness of Australia’s competition law framework in addressing
anticompetitive price signalling and other forms of information disclosures.
Essentially, that potentially allows a form of anticompetitive conduct to be
undertaken—obviously depending on whether businesses choose to engage in that
area.[16]
Are laws needed to address price signalling?
1.17
The ACCC and Treasury are in agreement that the current legislation was
inadequate to deal with price signalling. This lack of power has become more
notable in recent times, especially in relation to the banking sector. Concerns
have been expressed about possible price signalling comments made by banks in
relation to possible movements in the official cash rate by the Reserve Bank of
Australia (RBA). The ACCC advised that if the legislation was strengthened to
deal with price signalling, then the comments of key bank officials would come
under far more scrutiny. The ACCC stated:
…some comments from certain of the bank CEOs where, if we had
this sort of legislation in place, and assuming they still made the comments,
we would certainly at least have cause to be having a close look at them
because, with a couple of the comments, we ask ourselves: ‘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?’[17]
1.18
The ACCC confirmed that a recent example where it would have cause to
investigate involved comments by the CEO of the ANZ Bank Mr Mike Smith. In a
particular situation, Mr Smith commented that he would move in lock-step with
the RBA’s expected 25 basis point move. Mr Smith was subsequently asked what he
would do if the other banks did something differently to which he is reported
to have said that he would not be stuck on his own.[18]
1.19
The ACCC and Treasury perspectives were not universally accepted. The ABA
questioned the necessity for the Bill, arguing that no substantive evidence had
been produced to support the need for reform. The ABA stated:
The submissions to this inquiry into the government’s bill
and indeed the submissions in the original Treasury paper indicate that most
pre-eminent trade practices lawyers in the country have different views about
whether or not there is a problem. At the moment the weighting seems to be
towards the view that there is not a problem. The other area we would look at
is: ‘What is the actual substantive evidence of misconduct or of behaviour that
is seen to be inappropriate but has fallen outside the reach of the current
legislation?’ Again, it is very difficult to find that.[19]
1.20
The ABA concluded that ‘at this point we have not seen an overwhelming
or even particularly persuasive argument for change.’[20]
Conclusions
1.21
The ACCC’s current powers extend to price fixing but the ACCC is limited
in what it can do to investigate and seek prosecution for price signalling. The
Apco case was significant in revealing limitations in the ACCC’s powers.
Currently the ACCC would need to establish that there is an agreement or
understanding between parties in any alleged case of price signalling which
would be very difficult to do.
1.22
The ACCC and Treasury both confirmed that the current legislation is
limited and it must be strengthened if it is to deal with price signalling.
Price signalling cannot be ignored and if left to occur then consumers will be
disadvantaged and the competitive framework of markets is undermined. The
recent action of bank CEOs and their comments in relation to possible movements
in the cash rate by the RBA is a particular case that has brought most
attention to price signalling. It should be noted that both Bills before the
committee would apply beyond the banking sector.
1.23
The committee concludes that the ACCC’s current powers are insufficient
to deal with price signalling and they must be strengthened to give the ACCC
more power and as a warning to the market that this conduct will not be
tolerated. The committee dismisses the view of the ABA that reform in this area
is unnecessary.
1.24
While the intent of the first Bill is therefore supported, it is not the
most effective legislative solution for dealing with price signalling. The
following chapter will draw attention to some of the disadvantages inherent in
the Bill and concludes that it should not be supported.
1.25
The committee is of the view that the government Bill provides a more
effective legislative solution for dealing with price signalling. Chapter 2
reviews the feedback received in submissions and will also identify some of the
advantages in the government Bill. It concludes with a recommendation that the
Bill be supported.
Committee objectives and scope
1.26
The objective of the inquiry is to scrutinise the technical adequacy of both
Bills and their competing claims to delivering the policy intent required to
address the problem of price signalling, especially in the banking sector. In
conducting this examination, the committee focused on four key comparisons
between the Bills.
Conduct of the Inquiry
1.27
Information about the inquiry into the first Bill was advertised in The
Australian on 15 December 2010. Details of the inquiry and the Bill
were placed on the committee’s website. A media release announcing the inquiry
and seeking submissions was issued on 10 December 2010.
1.28
Seven submissions were received which are listed at Appendix A. Three
exhibits were received which are listed at Appendix C.
1.29
A public hearing was held in Canberra on Friday 18 February 2011. A list
of the witnesses who appeared at the hearing is available at Appendix B. The
submissions and transcript of evidence were placed on the committee’s website
at http://www.aph.gov.au/house/committee/economics/index.htm.
1.30
Information about the inquiry into the government Bill was posted to a
range of groups. Details of the inquiry and the Bill were also placed on the
committee’s website. A media release announcing the inquiry and seeking
submissions was issued on 17 May 2011.
1.31
Thirteen submissions were received on the government Bill; these are
listed at Appendix A.