ACCC power to prosecute anti-competitive price signalling

Articles Written by Dr. Wolfgang Hellmann (Special Counsel)

On 12 December 2010, the Government announced that it will introduce legislative reforms to promote a competitive and sustainable banking system in Australia. As part of the reform package, the Government proposes to outlaw anti-competitive "price signalling". The Government has released an Exposure Draft Bill to amend the Trade Practices Act 1974 (to be renamed the Competition and Consumer Act 2010 from 1 January 2011) which proposes to prohibit corporations from disclosing pricing or other competitively sensitive information. The Government has called for submissions from interested parties by 14 January 2011 and intends to introduce the amendments in the first sitting of the Parliament in February 2011.

Why is "price signalling" currently legal?

"Price signalling" commonly refers to a practice by which companies inform their rivals about future price actions. Price-related information can be communicated publicly (e.g. by making press announcements) or privately (e.g. by circulating price lists or otherwise exchanging pricing information). The competition concern is that price signalling facilitates price coordination amongst competitors and ensures its success by removing the uncertainty about future pricing conduct.

Price signalling is "unilateral" conduct. It is therefore not prohibited by the current price fixing prohibitions which require a contract, arrangement or understanding between competitors. For an arrangement or understanding to exist, there must be a "meeting of minds" of the parties and a consensus as to what is to be done, rather than a mere hope that something will be done. Price signalling usually falls short of this requirement because it is typically engaged in with the mere hope that the rivals will reciprocate when setting their prices.

What is being proposed?

The Government's proposal consists of two prohibitions.

The first prohibition relates to private disclosures to competitors. It prohibits corporations from making a private disclosure to competitors of information relating to price (including discounts, allowances, rebates and credits) in relation to specified goods or services that the corporation supplies or acquires. This will be a "per se" prohibition. That is, there is no need to show an anti-competitive purpose or effect.

"Private disclosure to competitors" is defined as "a disclosure to one or more competitors or potential competitors of the corporation in a market, but not to any other person". However, the prohibition cannot be avoided by also disclosing the pricing information to a non-competitor, and the disclosure through intermediaries is also captured. Further, the fact that the pricing information is otherwise available to the competitors is not relevant for determining whether or not a private disclosure has occurred.

There are some exemptions from this prohibition, in particular in relation to the disclosure of pricing information in a supplier-customer relationship, between joint venturers for the purposes of the joint venture and in the context of acquisitions of shares or assets.

The second prohibition applies to anti-competitive disclosures of price and other strategic information. It prohibits corporations from disclosing informationrelating to:

  • a price for, or a discount, allowance, rebate or credit in relation to, goods or services to be supplied or acquired by the corporation;
  • capacity or likely capacity of the corporation to supply or acquire goods or services; or
  • any aspect of commercial strategy of the corporation relating to goods or services, where the disclosure is made for the purpose of substantially lessening competition in a market.

In determining whether such an anti-competitive purpose exists, the Court may have regard to

(i) whether the disclosure was a 'private disclosure to a competitor';
(ii) the degree of specificity of the information;
(iii) whether the information relates to past, current or future conduct;
(iv) how readily available the information is to the public; and
(v) whether the disclosure is part of a pattern of similar disclosures.

The new law will include a provision that makes it clear that the anti-competitive purpose can be inferred from the conduct of the corporation or any other person, or from other relevant circumstances.

Will other industry sectors be affected?

The new price signalling law will only apply to goods and services that are specified by Regulation (e.g. by industry or type of supplier). The Government has said that, initially, the banking sector will be the only industry which will be "specified". However, the Government could extend the new prohibitions to any other industry sector or businesses (e.g. petrol).

Continuous Disclosure Obligations

The Government has stated that the new law will not prevent publicly listed companies from fully complying with their continuous disclosure obligations. However, there is no specific provision exempting disclosures made pursuant to these obligations (only a general exception for disclosures authorised by or under a law of the Commonwealth, a State or a Territory).

First ACCC reaction

The ACCC Chairman Graeme Samuel has welcomed the Government's proposal. He is concerned about public price signalling in the banking industry as well as in other industries and "hopes" that the ACCC's new powers will prompt those companies who are currently engaging in price signalling to cease such conduct.

Comments

The good news is that the Government will refrain from prohibiting pricing communications that have the likely effect of substantially lessening competition. An effects-based prohibition would have outlawed any public announcement of price or other competitively sensitive information if competitors reacted to the announcement in a way that is likely to result in a substantial lessening of competition - clearly, an unacceptable outcome in terms of legal certainty.

However, the proposed new law is still very broad and complex, and is likely to create significant uncertainty for the affected business community (initially, only the banks, but with the scope to extend the prohibitions to other industry sectors). For example, what type of information is captured by "information relating to any aspect of the commercial strategy" of a corporation - this limb of the second prohibition seems unnecessarily broad. Another example is that the "private disclosure" prohibition also applies to the disclosure of past pricing information which under normal circumstances, has no competitive significance in setting future prices. It remains to be seen whether any of the problematic areas of the new law will be rectified following the public consultation process.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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