Win some, lose some

From the outside the Commerce Commission's Fair Trading Act case against Bunnings always looked a difficult one, and I can't say that I'm hugely surprised that Judge Gibson in the Auckland District Court found for Bunnings on all 45 allegations. You can find the decision here on the Commission's website (though it's one of those annoying pdf's that won't let you select blocks of text).

The judge found that consumers were unlikely to have interpreted Bunnings' ads in a literal way but rather, at [136], "would take into account the nature of the industry, the size of the stores, the number of SKU's [stock keeping units, individual items on the shelves] and the general impossibility of ensuring that on each day every SKU in Bunnings stores was the lowest price. Consumers would also consider the LPG [the lowest price guarantee, i.e. the well known "if you happen to find a lower price we'll beat it by 15%"] alerted them to the possibility that not every item in Bunnings may be the lowest price but providing a remedy to achieve that". 

The "if you happen to find a better price" wording was self-evidently fatal to any overly literal reading of Bunnings ads, so the alternative argument run by the Commission was that, even if you cut Bunnings some slack over the practicalities of trying to monitor how its own 62,000 SKUs compared with the many tens of thousands of its competitors' prices, they weren't in fact making a decent enough fist of it to be able to claim that their prices were generally lower than their competitors.

That fell over, too, because none of the comparative price surveys put before the court was statistically robust enough to be relied on. The Commission argued (as I would have) that none of these surveys may have been perfect on its own, but taken in the round they suggested such and such. This "triangulation" didn't impress the judge who at [141] took (my wording) a Garbage In, Garbage Out approach, which is fair enough when the standard of proof in the proceedings was "beyond reasonable doubt".

The Commission has taken it philosophically (response here). But it left me wondering: while this was formally a Fair Trading Act matter, was it also expressing a more Commerce Act based concern about lowest price guarantees?

What concern, you may well wonder: what could be more competitive and pro-consumer than propositions such as offering to beat a competitor's price? What sort of twisted logic would see any harm in that?

The alternative logic goes like this. Suppose a new model of Kindle comes out, and I advertise it at $299 plus a guarantee to match or better any lower price from a competitor. My competitor has also got a stock of the Kindles and is wondering what to do. She sees my ad, and (the argument goes) reckons there's no point in trying to undercut me, as it'll do her no good: I'll just match her, she won't win any extra sales, and we'll both be worse off. So she prices at $299 as well. End of price competition for the consumer.

And there are other ways the lowest price guarantee might work against consumers' interests. A shopper may see my lowest price guarantee, and conclude there's no point in shopping around. Knowing that I've defused at least some comparative price searching might encourage me to set a higher price in the first place.

None of this, by the way, applies to Bunnings. As you can see in the judgement at [35-6], they genuinely went out to do what it said on the tin. 

There might be cases of nudge nudge, wink wink, see you in the bar at the next trade fair, where the competition is more apparent than real. But it wouldn't be my default position on the likes of best price matching. If a company is going to some trouble to position itself as an "everyday low prices" supplier, chances are that's what's going on. Alongside Garbage In, Garbage Out, maybe another computer motto is the best take: What You See Is What You Get.

It can work after all

At our usual blistering pace - the Fair Trading Amendment Bill was introduced in Parliament 11 months ago, and is still with its Select Committee (Economic Development, Science and Innovation) - we are getting closer to prohibiting 'unconscionable conduct'. 

'Unconscionable'? It's not a term defined in the Bill, though the proposed new Section 8 of the Fair Trading Act lists a set of factors intended to help courts recognise it when they see it. And it's not a term you see much used in everyday speech, either. But if you substituted 'disgustingly ratbag', you'd be pretty much there. 

It seems a bit odd that our existing legislation has a hole in it this big, but never mind, we're filling it in. While you can always argue about potential over-reach or under-reach, and the similar issues that crop up with the design of any legislation, the general thrust of the Bill ought to be welcome to everyone: to consumers, obviously, to economists, who recognise that markets if they're going to weave their magic need to work without oppression or deceit, and of course to the vast majority of businesses who operate decently.

The trouble has been, though, that the Aussies, who legislated for this back in 2010, came a cropper when one of their regulators tried to ping what they saw as an obvious candidate: in the Kobelt case, the Aussie High Court disagreed. That case had been brought by ASIC, the Aussie financial regulator, but the ACCC, who you'd imagine would normally be running the bulk of these unconscionability cases, was seriously rattled by the ASIC case falling over. I listened to ACCC Commissioner Sarah Court talk with some degree of passion about it at the RBB Economics conference last year and again at this year's CLPINZ conference. 

You can see why the Aussies were beginning to wonder if they needed something other than full 'unconscionability' - maybe some kind of 'unfair' provision - to catch stuff that looked pretty bad but didn't quite reach the statutory unconscionability threshold. And we might have to confront the same issue, given that our proposed legislation looks a lot like theirs.

But fear not. The good news, just this week, is that that the ACCC has scored a thumping great unconscionability win, and it looks as if the law might bite after all. This time, it was about the gross mis-selling by Telstra of mobile phone contracts to certain indigenous customers. The ACCC's statement is here, and there's a good piece in the Australian Financial Review (if you've got a sub) here.

Interestingly, despite admission of liability, apologies, and extensive remediation on Telstra's part, the agreed penalty which will be put to the courts by  the ACCC and Telstra for approval is a stonking A$50 million, which (I learn from the AFR article) would be the second largest consumer law fine in Australia, second only to the A$125 million imposed on Volkswagen for the "dieselgate" faking of emission tests (Volkswagen is apparently appealing, after a judge had upped the initial proposed penalty from A$75 million).

Hopefully our unconscionability provision, when it finally emerges blinking in the sunlight, won't be called on often. But it's good to know that it can be made to sheet home to the worst of the rogues and the bullies. To be honest, if I was asked which would I rather see criminalised first, cartel behaviour or odious pressure selling, I'd have to sit down and have a good think, and the answer mightn't be cartels.