An identically constituted Full Court of the Federal Court of Australia has twice found against the Australian Competition and Consumer Commission (ACCC) in significant price-fixing appeals.
In the process, the Court emphasises the importance of sound economic analysis to competition law, to the end that even price-fixing’s deemed contravention of the Trade Practices Act still requires a competition analysis.
In Flight Centre v ACCC, in a salutary lesson about market definition, the Court found the travel agent did not compete with airlines in any relevant market. Similarly, in ACCC v ANZ, the Court found mortgage brokers did not compete with the bank in the pleaded market. And in as salutary a lesson of statutory construction, in ANZ, the Court also held even agreement on the amount of payments to customers was not price-fixing as defined.
These are foundation aspects of any price-fixing claim: the essence of a price-fixing claim is an arrangement to fix prices for services supplied ‘in competition’ with at least one of the other parties to the arrangement. How did the ACCC go so wrong? It is tempting to suggest the ACCC was lured by both a concern for consumer interests, and price-fixing’s deemed contravention (thereby avoiding any need to show a substantial lessening of competition), into disregarding proper analysis.
To be told twice on appeal, as happened here, one’s analysis is artificial, and one’s expert is overreaching, is presumably to feel upbraided, especially if one is the ACCC.
It will be interesting to see if the ACCC appeals.
Flight Centre v ACCC
In Flight Centre, the ACCC contended for a market for distribution and booking services for air travel, in which travel agents competed with airlines to supply such services.
In response to airlines offering fares directly to customers at prices less than were accessible to the travel agent, Flight Centre sought airlines’ commitment to support its distribution network by equalising those prices. That, said the ACCC, was price-fixing.
But, said Flight Centre, we and the airlines are just supplying air travel services to customers: the airlines as principal; us as their agent. When a customer purchases flights from us, it is supplied by the airline, for which we are paid commission by the airline. There’s no distribution and booking service market: travellers want to fly; and booking flights, issuing tickets, and collecting money is just a part of that.
On Flight Centre’s appeal, the Court considered the trial judge had been heavily influenced by the opinions of the ACCC’s expert economist witness, Dr Vincent FitzGerald. Dr FitzGerald’s opinion (not contested by any other expert at trial) was, when travel agents and functionally segregated airlines sold flights to consumers in the retail market for international travel, they simultaneously provided (upstream) distribution and (downstream) booking services to each of the airlines and the customers.
Those services were said by Dr FitzGerald to be supplied in a market separate and distinct from the market for international travel itself. The competition was ‘horizontal’ – “if one makes the sale, the other does not” – and for the retail or distribution margin (the agent’s commission and fees).
But the Court found no evidence of airlines ‘competing’ in this separate market – for example, either by structuring themselves internally to provide distribution and booking services, or by accounting for commission otherwise payable to agents on airlines’ direct sales as the ‘in-house’ price for those services. Dr FitzGerald’s opinion lacked any real-world foundation.
Emphasising the importance of realistic market definition as an analytical tool (and of legal analysis not being blinded by economic jargon), the Court considered it artificial to characterise an airline’s direct sales to customers as the airline’s provision of a service to itself. That agents provided such services to airlines did not render substitutable the two distribution channels to customers.
And, fatally, no airline could supply distribution services for other than its own flights, meaning there could be no single market. As artificial was the disaggregation of a ticket’s sale into booking and flight components, when the two were inseparable in a market for the travel itself. The Court held the contended market inherently lacked any commercial reality.
What then was the relationship between Flight Centre and the airlines? It is as agent for the airlines, in which Flight Centre was incentivised to secure business for the airlines’ exclusive supply of air travel services to customers. Flight Centre was not competing with the airlines to supply air travel services, and thus – even if its conduct sought to control air travel prices – was not relevantly ‘in competition’.
ACCC v ANZ
In ANZ, the ACCC contended for a market for the supply of loan arrangement services, in which brokers and banks competed for customers. ANZ limited (to the equivalent of its loan approval fee, open to waiver) the amount of money a broker could pay to its customer on obtaining an ANZ loan. Again, said the ACCC, that’s price-fixing.
Of immediate difficulty for the ACCC was the implausibility of ANZ offering to arrange loans with any bank other than ANZ. But brokers exactly offered to arrange loans with any bank. Moreover, said ANZ, brokers offered choice, independence, and comparative advice.
ANZ’s internal documents – in recognising competition, but requiring a ‘level playing field’, between branches and brokers – were to be understood as referring to competition for the supply of loan products, in which brokers were the bank’s partners or collaborators (their sole income being in commissions from the bank).
At trial, Dr FitzGerald made another appearance for the ACCC (not contested by any other expert economist), again segregating the bank into separate functional business units, and opining services provided by branches and brokers were economically substitutable, each bringing borrowers’ business to the bank.
This time, the trial judge was not swayed by the expert’s analysis, finding it at odds with industry evidence, which in turn did not support ACCC’s case.
On ACCC’s appeal, the Court again was critical of the ‘artificiality or contrivance’ in the ACCC’s contended market definition. The Court noted the limited nature of economists’ utility in relation to primary facts, and especially where they draw inferences from facts otherwise than in their expertise.
On the core issue, the bank’s advice and assistance to customers in the obtaining of a loan was integral to the provision of services for the supply of the loan products themselves, rather than being the provision of services in a separate market. And brokers did not supply loan products.
Once again, even if its conduct was to control an aspect of the price for loan arrangement services, the bank was not ‘in competition’ with brokers in that market.
ANZ cross-appealed the trial judge’s alternative finding its conduct relevantly fixed any price. On appeal, the Court considered there could be no doubt ANZ’s limitation controlled the amount of money the broker could pay its customers on obtaining an ANZ loan. But - because the broker didn’t charge the customer at all, and the customer’s obligations to the bank were not reduced by the payment – it was not fixing ‘price’ as defined.
A purposive interpretation of the section as an intended catch-all was unacceptable: these are penal provisions, for strict interpretation.
Where does this take us?
On one view, these most recent cases are simply re-establishing orthodoxy. The conflicting trial judgments – on similar facts of industry intermediaries, with Flight Centre losing, but ANZ succeeding – left competition lawyers and their clients uncertain as to the legitimate and familiar role of agents and brokers as additional distribution channels to their principal’s products.
That uncertainty has now been removed.
It is central to an allegation of price-fixing that at least some of the participants be in competition with each other. Here, each Flight Centre and ANZ were asserting demands without obvious competition impact (although likely higher prices, detrimental to consumers). Using price-fixing’s deemed contravention to avoid having to show any prospective substantial lessening to competition risks missing the point, if competition is not engaged at all.
These cases serve principally to remind us that competition law is not a universal panacea in the interests of consumers. The generic competition statutes – the Commerce Act here; the relevant sections of the Trade Practices Act in Australia – are informed by the basic proposition (like it or not) that, left to itself, free competition in a market will most efficiently allocate society's resources. They accordingly, and only, prohibit meaningful attempts to interfere with that process, rather than require the hoped-for outcome.
Competition law stops short of obliging competitors’ achievement of efficiencies: instead, it concentrates on ensuring there is no impediment to the competitive process. The Full Court’s judgments are a useful reminder of the law’s – and regulators’ – limits.