In brief

  • An Opposition Bill aimed at prohibiting anti-competitive price signalling is the latest in a series of reform proposals being considered to fill what has been argued to be a gap in our current law.
  • Anti-competitive price signalling is inherently difficult to distinguish from legitimate conduct, and as a result difficult for competition authorities such as the ACCC to target. Due to the inherent uncertainty and high stakes surrounding the Opposition’s proposed prohibition, the Bill, if adopted, risks causing firms to err on the side of under-informing customers (both consumers and business customers) as well as imposing compliance costs.
  • Given the intense debate at the moment, it is clear that this reform push needs to be played out further. Watch this space, and consider the implications when the dust settles.  

Ongoing political debate has seen the release by the Federal Opposition on 22 November of a Private Member’s Bill entitled the Competition and Consumer (Price Signalling) Amendment Bill 2010 (Bill). Citing concerns expressed by the Australian Competition and Consumer Commission (ACCC) about a perceived gap in current law, the Bill is said to target:

‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

Unlike other provisions in the Trade Practices Act 1974 (Cth)1 (TPA) which prohibit anti-competitive dealings between competitors concerning prices (such as the cartel prohibitions), the Bill focuses on a type of unilateral conduct which is said to have the required anti-competitive effect—so-called price signalling. The Bill introduces a new civil penalty. No criminal offence is created.

The Bill defines price signalling broadly, but narrows the scope of the prohibition by requiring that the conduct have a substantial anticompetitive effect and by providing for certain exclusions.

The prohibition

The new prohibition requires the following three elements to be established:

Communication by a corporation of price-related information

The communication must:

  • be to a competitor (ie any entity in actual or potential competition in any market, either with the corporation or with a parent/subsidiary of the corporation), and
  • comprise information that relates to price or non-price terms and conditions that have a ‘bearing’ on price.

While it is required that the communication must be ‘to’ a competitor, the net is cast broadly to include direct, indirect, private or public communications and announcements.

Proscribed purpose

The communicator of the price-related information must have a substantial purpose of inducing or encouraging the competitor to vary the price at which the competitor supplies or acquires (or offers or proposes to supply or acquire) goods or services. The proscribed substantial purpose can be inferred from circumstantial evidence.

Anti-competitive effect

Significantly, the communication of price-related information for the proscribed purpose is only prohibited where the communication has, or is likely to have, the effect of substantially lessening competition. The effect of the communication may be considered in light of other communications or acts.

Exclusions

The Bill prescribes a number of exclusions:

  • Private communications between parent/subsidiary corporations or between joint venture parties. It is not clear why this exclusion only covers private communications between such entities and apparently catches public communications between them.
  • Communications that contravene (or would contravene but for authorisation or notification) the TPA prohibitions in relation to cartels, exclusive dealing and resale price maintenance.
  • Transmission or retransmission of price-related information already in the public domain. The Bill does not define what is meant by ‘information already in the public domain’. For example, it is not clear if this exclusion would apply to current prices advertised on petrol retailers’ notice boards.
  • Communications required by law.
  • Communications to a customer or supplier which have the principal purpose of informing them of a variation in price to be charged (or paid) by the corporation.  

Impact

Although the definition of price for the purposes of the section includes interest and fees charged on a loan of money or other financial services, this proposed ‘price signalling’ prohibition would have general application and is not limited to banks.

There are a number of observations to be made on the proposed prohibition:

  • The net for what is ‘price signalling’ is cast very broadly, capturing both private and public communications and not only communications that relate to price but also non-price terms and conditions that may have a bearing on price. On its face this creates enormous scope to capture communications that are benign or pro-competitive.
  • Inevitably, in the face of such a broad definition of price signalling, the prohibition incorporates a competition test—the communication must have the effect or likely effect of substantially lessening competition. While this is necessary to exclude benign and pro-competitive communications, it imposes a very high burden on the ACCC or other parties seeking to establish a contravention. The burden is higher than under the current price fixing prohibitions, which are illegal per se without the need to establish anticompetitive effect.
  • The prohibition also incorporates a new ‘purpose’ element—the purpose of inducing or encouraging a competitor to vary its prices. This proscribed purpose is different from the standard approach of requiring an anti-competitive purpose. Courts may infer the new purpose element from conduct or any other circumstances. It remains to be seen what steps a corporation would need to take to prevent such an inference being drawn.
  • Given the breadth of the proposed ‘price signalling’ prohibition, it would significantly broaden the ACCC’s coercive investigation powers. Where the ACCC suspects that price signalling has occurred, it would be able to obtain relevant information, documents and evidence under its mandatory powers (in section 155 of the TPA).
  • The prohibition does away with the need to establish an ‘understanding’ between competitors in respect of their pricing conduct, thus focusing upon one of the ACCC’s complaints that the current law imposes too high a burden to deal with anticompetitive communications of price-related information.
  • The Explanatory Memorandum states:

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.

While it is correct to note that the current price fixing prohibition requires that there be at least an ‘understanding’ between the competitors, it is not entirely accurate to suggest that unilateral price related communications cannot be dealt with under the current law. The current law permits penalties and other remedies to be obtained against corporations who attempt to contravene or attempt to induce a contravention of the cartel prohibitions, including price fixing. This power has been successfully used by the ACCC against corporations for conduct involving communications of price-related information.  

Related developments

The Opposition Bill comes at a time of intense political debate about how to deal with price signalling. However, parliamentary debate on the Bill is likely to be slowed in the short term, as on 23 November the Bill was referred to the House of Representatives’ Standing Committee on Economics for further consideration. A report is due on 30 May 2011.

In the meantime, the Federal Government has also indicated that it will introduce its own legislation covering price signalling. It is anticipated that the legislation will be unveiled next month by Federal Treasurer Wayne Swan, as part of a package of reforms aimed at the banking sector. This month Swan has stated:

We’ve also been working with our financial regulators to develop a new banking competition package. One part of this package has been working closely with the ACCC to carefully and methodically design new laws to prevent price signalling. There is no silver bullet here … so it will take time to build up more competition between banks. But the Government has been working through it in a considered way to ensure these reforms are enduring and effective and don’t let the banks off the hook, or have unintended consequences for other sectors of our economy. You’ll be hearing more in this space soon.

The ACCC is understood to have a preference for a broader prohibition on ‘concerted’ or ‘facilitating’ practices. Anti-competitive price signalling can be one kind of facilitating practice.

As Federal Parliament will not again resume until 2 February 2011, it is likely to take some time yet for there to be parliamentary debate on any Federal Government proposed reforms covering price signalling.

On 18 November, the Green Party introduced in the Senate the Banking Amendment (Controls on Variable Interest Rate Changes) Bill 2010. This bill adopts a somewhat heavy-handed approach by imposing price regulation on certain financial services and would require banks:

  • not to increase variable interest rates on loans and mortgages by more than Reserve Bank interest rate increases, and
  • not to decrease variable interest rates on loans and mortgages by less than the Reserve Bank interest rate decreases.

Given the major political parties’ interest in potential reforms comprising price signalling legislation, the scene has been set for ongoing public debate on this issue.

Practical implications

Price announcements are used by many firms for entirely legitimate purposes, the most obvious of which is informing customers and shareholders.

Anti-competitive price signalling is inherently difficult to distinguish from legitimate conduct, and as a result difficult for competition authorities such as the ACCC to target. Due to the inherent uncertainty and high stakes surrounding the Opposition’s proposed prohibition of price signalling, the Bill, if adopted, risks:

  • causing firms to err on the side of under-informing customers (both consumers and business customers); while at the same time, or
  • not fully achieving what the Bill seeks to achieve, in terms of catching only illegitimate price signalling conduct.

In this sense, the Bill if passed in this form may be akin to a parliamentary ‘own goal’.

Given the intense debate at the moment, it is clear that this reform push needs to be played out further. Watch this space, and consider the implications when the dust settles.