Friday, 22 November 2019

RBB Economics draws a crowd

A record number of attendees braved the smoky air of Sydney yesterday to attend RBB Economics' ninth annual competition conference. If you're in the competition law trade and you haven't been, have a word with them: it's a good event. This year's was on the general theme, "What's next for competition law in Australia?"

We started off with the traditional opening keynote by Rod Sims, chair of the ACCC (his speech is here). As it happened two of his points - the potential role of consumer law in enhancing competition and productivity, and a potential need for strengthened merger laws - got developed in a lot more detail in later sessions. Like a lot of people in the competition game I've tended to relegate consumer law to poor cousin status, and (let's face it) largely on intellectual snobbery grounds: where's the challenge in reading an ad to see if it's misleading or deceptive, compared with the subtleties of economic theory? But Rod, and subsequent speakers, made a good fist of arguing that consumer law helps buttress the workings of workably competitive markets.

Jacqueline Downes, a partner at Allens, spoke in reply. The main points I took away were that the ACCC's concerns about merger laws not being effective in blocking anti-competitive mergers were not supported by the data: the few cases that go right through the courts and go against the ACCC are only a tiny unrepresentative fraction of mergers. The vast majority of potentially iffy ones get knocked back either by the firms' advisers, or in informal discussions with the ACCC. The system works. She also wondered about the number of market studies being undertaken (not that the ACCC has any choice about doing some of them) and their potential for politicised policy responses.

The next session was 'What would a new unfair trading prohibition look like?', led off by ACCC commissioner Sarah Court. She had recently changed her view and now thinks an 'unfair' trading prohibition would be a useful tool, in part because of recent difficulty in making the existing 'unconscionable conduct' offence stick: you'll find a good entry point to the Kobelt case that caused the grief here. In reply barrister Robert Yezerski also commented on the Aussie courts' struggle to get their heads around the statutory formulation of  'unconscionability' as opposed to the common law equitability jurisprudence they had learned at their elders' knees. In Robert's view, the key concept in the statutory formulation is, essentially, immorality - something that is so at odds with society's moral norms as to deserve condemnation.

Even if Kobelt fell over from a regulator's point of view (the financial regulator ASIC in that case, not the ACCC), it may have been one of those finely balanced facts-based cases that don't count for much in the longer-term. Which is just as well, as we in New Zealand will be looking to the Aussie jurisprudence when we adopt unconscionability, as we are now likely to do. As for bringing in 'unfair' in Australia, I could sympathise with Sarah's point that the wording would likely need to be linked to 'significant consumer harm', but I'm not sure (and I don't think the audience was either, going from the Q&A) that there is going to be any easy way of formulating a workably effective form of words.

After lunch we had 'Do we need to strengthen Australia's merger laws?'. Rod had felt that the courts were letting uncompetitive mergers through, partly because they were not properly taking into account how the post-merger commercial incentives changed  for the managers of the merged entity: he'd felt that the ACCC's submissions on changed incentives were being dismissed as speculative theorising. Jennifer Orr, principal economist in the ACCC's Economic Group, took a different line about arguably too-lax merger under-enforcement: she pointed to growing empirical evidence (in academic journals, mainly, and mostly US-focused) that industry concentration had been (wrongly) allowed to develop to the point that more powerful incumbents were anti-competitively enabled to raise price or give less. Had the prevailing 'Chicago School' approach to anti-trust missed something that older-fashioned analyses, which gave more weight to structural conditions like HHIs, had been more alert to?

In reply King & Wood Mallesons partner Lisa Huett and RBB Economics' own George Siolis pushed back. Lisa argued that "If it ain't broke, don't fix it", and provided the numbers to back Jacqueline Downes' earlier point about the vast majority of potentially problematic mergers getting flagged away. She wasn't enamoured either of the potential 'solutions' (like reversing the onus of proof, or introducing rebuttable presumptions of harm if say a proposed merger took an HHI over 2500). And she pointed out that in any event there had been a fair amount of other law reform (the 'effects' test for abuse of market power, 'concerted practices') to deal to any mischief a lax merger approval might have facilitated. George traversed the history of the evolution of anti-trust thinking which, for good reason, had arrived where it is today. He preferred that competition authorities should stay the course, use all the tools available to check for (say) potential post-merger coordination effects, and "get dirty", meaning immerse themselves fully in the facts of the case and the industry.

This session got the audience going. One chap bristled at the idea that merger parties should have to prove anything: the shoe should be on the other foot, and the ACCC should be positively required to prove harm, rather than hide behind a "not satisfied there wouldn't be" criterion. In general there was quite a bit of support for the idea that Type 2 errors (letting anti-competitive mergers through) aren't welcome, but equally (and for some in the audience, more importantly) Type 1 errors (blocking efficiency-improving mergers) weren't getting enough of a look-in.

Personally I was left in a bit of a quandary (maybe you are too), and said so in a question to the panel. On the one hand, I've been involved in mergers that went from 3 to 2: where, for example, the #2 and #3 players, merged, would make a more effective competitor to the #1 incumbent. I had no trouble sleeping at night afterwards, never mind what the post-merger HHI said. On the other hand you can't go around ignoring the evidence that Jennifer mentioned, either.

Even if you don't quite know what to think, though, one place you land is the need for post-merger reviews to see what is actually happening. In my notes I've written "ACCC not resourced, no powers" to do post-merger reviews: I can't remember whether one of the panellists said it, or someone mentioned it over coffee, or where it came from. But if so, it needs to be fixed, and the same applies to our own Commerce Commission (which in the past has had at least an indicative go at seeing how post-merger events played out). We need to know.

And so into the final session, 'How can the ACCC's competition concerns get more traction before Australian courts?'.

A Brit, a Scot and a Kiwi go into a bar ... aka Simon Bishop (RBB Economics), Dr Ruth Higgins SC, and Dr Mark Berry as they put the finishing touches to their thoughts on how to get traction in court on competition cases

One for the lawyers, but also some useful insights for those of us on the economics side of the house. Our own Mark Berry pointed to the value of the New Zealand 'hot tub' style of testing expert evidence and its ability to expose errors (on all sides of an argument). And he wondered if New Zealand and Australia were actually moving things along too quickly, by comparison with the times taken to rule on merger clearances or authorisation overseas: are we missing a chance to look deeper and harder at the issues involved? Ruth Higgins emphasised the primacy of the facts, quoting Thomas Huxley's "The great tragedy of science - the slaying of a beautiful hypothesis by an ugly fact", and argued that economic arguments are better when they integrate the apparently inconvenient facts. She also said that the big contribution from economists can come from establishing an overall framework within which the court can advance, rather than leaping to judgements themselves. And RBB's Simon Bishop said that the ACCC shouldn't necessarily be dismayed by the odd loss in court: it is not compelling evidence of wider underenforcement (they are always the marginal could-go-either-way cases), and echoed Ruth's points about economists showing restraint, focus, and a respect and care for the facts.

In panel discussion afterwards, there was also general agreement on what economists shouldn't do. There was short shrift given to the economists who can see no weaknesses in their arguments, and no sympathy for spinners of over-complex theories which they can't explain to decisionmakers in a persuasive way. But none of us are in those boxes, are we?

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