Monday, 26 November 2018

The wheels are back on

"The goss", I said a while back, "is that the Commission stands a good chance of having Lodge overturned in the Court of Appeal, but stranger things have happened", Lodge being the High Court case involving price-fixing amongst Hamilton real estate agents.

The Commission had rather unexpectedly lost it - "...and then the wheels came off" - but now the Court of Appeal has put the wheels back on, tightened the nuts, and banged the hubcaps into place.

In the High Court, Justice Jagose had said that the estate agents had come to a collective agreement (their agencies would stop absorbing the cost of Trade Me real estate listings and instead start charging the house sellers for it), and had given effect to it (part of it, for example, was a collective withdrawal of listings on Trade Me, which duly occurred).  But - and this was the surprise bit - the arrangement didn't breach s30 of the Commerce Act. If the seller wanted a Trade Me listing, it was still open to individual real estate agents to offer a discount or indeed carry the cost themselves if they badly wanted the listing. If the ad cost was still negotiable, then it couldn't be said that the collective agreement had controlled the price.

Not so, said the Court of Appeal. The estate agents had collectively agreed to remove State of the World A (the agencies wore the cost) and replace it with State of the World B (the vendor probably paid, but maybe twisted the arm of the agent and got it for free). That's not on: at [89]
We agree with Mr Dixon’s [John Dixon QC, for the Commission] submission that all of those vendors after January 2014 who chose not to list on Trade Me when faced with having to pay for it, and indeed those who did pay the fee, lost the opportunity to be offered a price which had been set for an agency operating in response to working competitive market forces ... Plainly the agreement in principle to withdraw from agency-paid Trade Me advertising would affect price; if the vendor did not have a Trade Me advertisement it had lost an allowance or credit that had been previously provided. The price for the real estate agencies’ services was correspondingly more.
And the Court gave a homely but useful example: at [88]
By way of example, if the retailers of motor vehicles in a street all agreed on an asking price for a certain model, aware that this was the asking price only and the end price after negotiation could be quite different, that would have an anti-competitive effect in the way discussed in Plymouth Dealers’ Association [an American case from 1960]. The starting point for one side of a negotiation about price would undoubtedly affect the end price, even if it may be possible or even likely the end price would be different from the starting point.
I could see Justice Jagose's point, but the Court of Appeal has put us both right. It's clearly the better take, and I'd be mightily surprised if the Hamilton agents press on to the Supreme Court.

Getting back onto the safer ground of economics, there was a side issue of whether economic evidence about what the real estate agents were likely to have done in any event was admissible. The High Court had said no; the Court of Appeal agreed.

And there's a lesson there for businesses in the real world. It's a recurring theme: some sort of shock happens - in this case, Trade Me tried on an enormous rise in its listing fees, in the air cargo cases airlines got whacked with new security charges - and the question arises, what to do? Chances are, in a competitive market, you're going to have to pass them on to the ultimate customer. All of you in the real estate or air freight game may have independently come to the same conclusion.

But you mustn't get together and collectively agree to do it, even if the two outcomes don't look very different. "It would have happened anyway" will be no defence. At [112] the Court of Appeal agreed with the High Court which had said at [238] that
in principle, s 30 type conduct does not avail of a competition analysis. Constraints on price-setting are deemed in breach of s 27. That the same price may have arisen in the counterfactual (ie, absent constraint) does not respond to the presence of constraint in the factual. The proposed [economics] evidence was irrelevant
So there have been twists and turns in the story, but the end point for businesses is still as I put it after the High Court: "it remains highly dangerous to go near any discussion of price or pricing models with your competitors ... How much of a cost to absorb, and how much to pass on, needs to be your own independent decision".

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