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Competition and Consumer (Price Signalling) Amendment Bill 2010

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2010

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

Competition and Consumer (Price Signalling) Amendment Act 2010

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

Circulated by authority of

The Hon Bruce Billson MP



Competition and Consumer (Price Signalling) Amendment Act 2010

OUTLINE

This Coalition Private Member’s Bill seeks to establish a new head of power under which the Australian Competition and Consumer Commission (ACCC) would be able to investigate and seek penalties for ‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

 

Anti-competitive price signalling disadvantages consumers and is harmful to the Australian economy.

 

As recently as August this year, ACCC Commissioner Dr Jill Walker was still making the case that this ‘gap in the law’ needed to be addressed by ‘a European-type prohibition against facilitating or concerted practices to directly target the practices of concern’.

 

The Government has failed to address the ‘price signalling’ risk to consumers and the Australian economy where the current trade practices law was said by the ACCC to be unable to deal with the co-ordination of pricing between competitors in the absence of evidence of an understanding to act on this information.

 

This Bill creates a new provision to make anti-competitive ‘price signalling’ unlawful designed to operate within the framework of the Trade Practices Act (1974) (to become the Competition and Consumer Act 2010 after 1 January 2011) to respond to repeated calls from the ACCC for Parliament to address this ‘gap’ in Australia’s competition ‘tool kit’.

 

Price signalling is a facilitating practice by which corporations inform their rivals about price actions and intentions, so as to eliminate uncertainty about the price of their goods or services, thus reducing the inherent risks of competition which would be a feature a workably competitive market.

Anti-competitive price signalling is engaged in with the hope, or even expectation, that competitors will reciprocate in term of the setting of the price and price-terms and conditions for their goods or services, although it does not require any commitment from them to do so.  The effect of such behaviour will often be the same as prohibited conduct but is said by the ACCC to currently not be captured by existing prohibitions.

This conduct is unilateral and therefore can not be dealt with under the existing ‘price fixing’ prohibition where an understanding to exchange information that has the purpose, effect or likely effect of fixing, maintaining or controlling prices is required.

Currently, price signalling is not covered by the existing cartel prohibitions of the Trade Practices Act (1974) in the absence of an ‘understanding’ between the parties.  This means there is a commitment to act in particular way, with the purpose or effect of substantially lessening competition.

The ACCC has previously recommended changes to the law to redefine what amounts to an ‘understanding’ to address the requirements of ‘commitment’ demanded by the Courts.   In March 2008, the Government undertook to give careful consideration to the ACCC’s proposed amendments to the Trade Practices Act 1974 , but has failed to produce any conclusive policy or legislative response.

 

It is important to recognise that the communication of price-related information can be pro-competitive and beneficial for consumers. 

 

The ability for consumers to compare prices, to be aware of discounting or imminent price increases, to be readily able to efficiently research purchasing decisions and compare rival offers is preserved and protected by the provisions of the Bill that contain the prohibition to anti-competitive price signalling.

 

The definition of unlawful anti-competitive ‘price signalling’ detailed in the Bill contains three elements specifically designed to ensure that pro-competitive and pro-consumer price-related communication is not impeded while the anti-competitive price-related communication that facilitates co-ordination to distort markets and disadvantage consumers is captured as unlawful.

 

The characteristics of unlawful ‘price signalling’ requires price-related information to be communicated to a competitor, for the purpose of inducing the competitor to vary its price, with the effect or likely effect of substantially lessening competition.

 

The acts of ‘communication’ addressed by the Bill are not limited to only those addressed or directed to a particular competitor or designed as being expressly for the competitor’s attention.   It includes acts of communication more broadly including broadcasts without a particular defined audience and public announcements.

 

The Bill provides that inducing or encouraging price variations can be found to be the purpose of a communication so long as it is a substantial purpose of a number of, or possibly many, purposes.

 

The Bill makes it possible for a Court to infer that the purpose of communication by a corporation about price-related information was to encourage a rival to vary a price having considered the evidence, conduct of the parties involved and relevant circumstances.

 

The ‘substantially lessening competition’ test is a recognised threshold in the Trade Practices Act and is selected to ensure that anti-competitive effects manifested in identical prices and parallel price movements in competitive markets are captured.  For oligopolistic markets and markets with competition deficits, it is open for the courts to conclude that even the more modest anti-competitive infringements amount to a substantial lessening of competition.

 

The Bill defines key terms relevant to the operation of the provisions and where necessary, provides further clarity for terms defined more generally in the Trade Practices Act , for the purposes of avoiding uncertainty about the new head of power for the ACCC.

 

Specific exclusions from the unlawful conduct of ‘price signalling’ are defined to ensure that the Bill does not impinge on the communication of price-related information that is not anti-competitive, specifically addressed by other provisions, or which may be a required by statute or common law.   The Bill expressly excludes the communication of pricing information already in the public domain and for the principal purpose of conveying price variations between suppliers and customers where the entities concerned might also be competitors.

 

The Bill provides for the ACCC to receive, consider and grant an authorisation for conduct that may offend the price signalling prohibition, where the Commission is satisfied that the public benefit of authorised conduct outweighs the likely detriment to the public constituted by any lessening of competition.

 

 The Bill is responsive to the ‘gap in the law’ repeatedly identified by the ACCC and achieves the Coalition’s stated policy objective without risking over-reach.  The provisions are technically proficient and drafted in a style that is consistent with other prohibitions in Part IV of the Act.

 

The Coalition’s Private Member’s Bill is real action to give the ACCC the ability to tackle ‘price signalling’ which it has been seeking to address a gap in the competition policy tool kit after years of Government talk and inaction.

 

FINANCIAL IMPACT

The Bill will have no financial impact.  The Australian Competition and Consumer Commission already has an operating budget and this Bill will provide an additional legislative tool to support the ACCC’s purpose of     promoting competition and fair trade in the market place to benefit consumers, businesses and the community.

NOTES ON CLAUSES

 

Short title

This Act may be cited as the Competition and Consumer (Price Signalling) Amendment Act 2010 .

 

Commencement

This Act commences the day after it receive Royal Assent.

 

Schedule 1 - Competition and Consumer Act 2010

 

The Bill inserts a new section in Part IV - Restrictive trade practices (Division 2 - Other Provisions) of the Act.

 

45A Price signalling

 

Item 1  

This item inserts a new Section 45A dealing with that anti-competitive conduct of price signalling.

 

Subsection (1) creates the prohibition of price signalling.   The prohibition is embraced by section 76 of the Act, which provides that a person (in this case a corporation) who contravenes a provision in Part IV of the Act is liable to a pecuniary penalty.  This is a civil penalty - no criminal offence is created.

 

Subsection (2) defines price signalling.  In a court action against a corporation for the anti-competitive conduct of price signalling, the ACCC will have to show three things:

(a)      the act of communicating price-related information to a competitor;

(b)    an intention to influence a competitor to change their prices; and

(c)     a ‘substantially lessening competition’ effect

Subsection (3) confirms that the ACCC does not have to directly show the intention of influence a competitor to change their prices, but can build a circumstantial case.

 

Subsection (4) provides that communication can include indirect communication or public announcements, as long as the intent and anti-competitive effect are there.

 

Subsection (5) defines price related information to include the price and terms and conditions.

 

Subsection (6) defines a competitor in a way that ensures that a corporation cannot use another related corporation to relay information to a competitor.

 

As part of defining to the intention to influence a competitor, subsection (7) describes the how the intention is to get a competitor to price its goods or services differently to the way it would do it without the price signal.

 

Subsection (8) confirms that inducing or encouraging price variations can be found to be the purpose of a communication so long as it is a substantial purpose of a number of, or possibly many, purposes, and need not be the sole or dominant purpose.

 

Subsection (9) provides that to prove an anti-competitive effect from a communication, the ACCC only has to show that it the communication is part of a wider practice that is substantially anti-competitive, not that an individual communication has a substantial effect.

For the purpose of avoiding uncertainty, subsection (10) provides an expanded definition of a competing entity and ‘price’ to included the costs and charges associated with lending and financial services.

 

Subsection (11) details specific types of price-related communication not captured by the price signalling prohibition.   The exclusions apply to internal communications within a joint venture; prohibited communication captured elsewhere in the Act; the repeating of price-related information that is already public; communicating price-related information in response to a legal requirement; or for communication that is mainly for a supplier-consumer relationship, where the same parties might also compete.

 

Item 2

This item allows the ACCC to give an exemption to a corporation for conduct that would otherwise be price signalling by the granting of an authorisation. 

 

Item 3

Item 3 requires that the ACCC be satisfied that an exemption would be, on balance, in the public interest before granting an authorisation.