How will the Aussies' new competition law play out?

And so to my final write-up of last week's RBB Economics conference in Sydney, the session on "How Australia's competition law deals with excessive pricing". It covered two topics, how competition law is going to evolve in the wake of the Aussies' changing their version of our s36 (the abuse of market power), and how the new "concerted practices" prohibition might operate.

Liza Carver, a partner at Herbert Smith Freehills, spoke on "Reform of section 46: what does it mean for unilateral pricing decisions?" and looked at potential implications in three areas. Predatory pricing: the new law is no clearer than the old on how you go about applying a "below average variable cost" standard, and might (no stronger) have opened up the possibility that recoupment isn't a necessary element anymore, because the basis for recoupment might have been grounded in the now junked "take advantage" wording of the old version of the law. Margin squeezes: the new law isn't any clearer on this tricky area, either, with Liza saying that the courts hadn't been able to deal with them very comfortably (she instanced our own beloved Telecom v Clear), which is why there have been more industry specific regulators and more access price regulation. Excessive pricing: she worried that "it will be open for the ACCC and potential plaintiffs to allege that "excessive" pricing by a firm with a substantial degree of market power has or is likely to have the effect of substantially lessening competition in a downstream market".

If Liza's right on that last point, that's probably a bit more radical an outcome than proponents of change to Australia's s46 would have meant: merely being a monopoly, and charging the monopolist's price, weren't (in my mind anyway) ever what the Harper changes were aimed at. I had a quick squizz at how the ACCC is minded to operate under the new misuse of market power legislation (assuming it gets through the Aussie political process, something I haven't been able to get a feel for), but the draft guidelines didn't look as if the ACCC threatens to gallop off in new radical directions. They don't mention excessive pricing per se at all, other than in the context of a margin squeeze.

Wayne Leach, a partner at King and Wood Mallesons, spoke on "Will the new concerted practices law in Australia help to bring down prices?". Since we don't have anything along these lines here at home, by way of background this is the proposed legislation:

 Section 45

1. A corporation must not:  …

3. engage with one or more persons in a concerted practice that has the purpose, or has or is likely to have the effect, of substantially lessening competition.

And here's the definition of concerted practices from the ACCC's draft guidelines on how they'll apply the law:

A concerted practice is a form of coordination between competing businesses by which, without them having entered a contract, arrangement or understanding, practical cooperation between them is substituted for the risks of competition

The lawyers amongst us will recognise that "contract, arrangement or understanding" bit: it's also the language in our s27. So the intent (as Wayne said) is to catch things that don't quite make the "understanding" threshold in the existing law, but are still coordinated in some way and have an competition-lessening effect. The ACCC gave a number of hypothetical examples: one was

A number of petrol retailers notify each other of their future pricing intentions. While they have not committed to do so, they begin to regularly follow the price change foreshadowed by others. Retailers find such information assists them and start making business decisions in expectation of calls from their competitor. No attempt is made to reject the calls. Such disclosures results in the pricing uncertainties present in a competitive market effectively being substituted for cooperation

It's all new territory. Wayne felt that the Aussie law, with the requirement that the challenged concerted practice must be shown (with proper evidence, for example on prices) to have had an actual effect on competition in the market, should help avoid the overreach of the European courts, where anti-competitive effect has effectively been presumed rather than proved. And he reckoned that, as part of establishing whether the practice did actually have an impact, the US approach of "plus factors" might come into play. "Plus factors" include things like "outcomes that can be explained rationally only as a result of concerted action". We'll see how it plays out: if you're interested, I expect Wayne's written-up analysis will turn up in due course on his firm's In Competition blog.

And positively the last, final word (at least for a while) on misuse of market power: last night LEANZ had a well-attended debate in Auckland pitting the suave and empathetic duo of Russell McVeagh's Sarah Keane and NERA's James Mellsop (supporting the case we should leave s36 alone) against the polished and measured team of Matthews Law's Andy Matthews and me (supporting the case we should do a Harper). There wasn't a vote at the end, and modesty prevents me from speculating on what it would have indicated had there been.

That was the last LEANZ event for this year: don't forget to pay your sub to support next year's programme. Special thanks to Richard Meade, who herded all the cats into position, and to Mayne Wetherell who very kindly hosted the event at their modern new office in the Viaduct and who helped circumvent Google Maps' unhelpful misdirection to a nearby building site.