Australia: Price signalling

Last Updated: 8 February 2011
Article by Michael Corrigan

Kate Ritchie:  Joining us today is Michael Corrigan.  He is a partner in the Competition Group at Clayton Utz in Sydney.  Michael, a warm welcome to Boardroom Radio. 

Michael Corrigan: Thanks Kate and nice to talk to you.

Kate Ritchie:  Now Michael, at the end of last year, the Government released draft legislation on price signalling prohibitions with particular reference to banking.  Can you take us through some of the proposed reforms?

Michael Corrigan:  Yes, the Government has released a draft exposure bill to introduce quite strict laws prohibiting price signalling between competitors.  The Government's bill was released as a package to address a number of concerns around competition within banking. 

There have been some suggestions from the ACCC Chairman, Graham Samuel, that some recent comments by a major bank about the need to lift interest rates above official rates could be considered a form of price signalling. 

So you might ask what is price signalling?  Well, it's generally understood as a practice engaged in by competitors which falls short of actual collusion but involves communicating or signalling a company's price rises or some other initiative to its competitors for the purpose of having them follow.  For some years, the ACCC has been pressing for a general price signalling reform, usually in reference to petrol prices - and claiming it has difficulties in some cases of proving actual collusion between competitors. 

Kate Ritchie:  So, is there a gap covering these practices under our law currently and really does the ACCC need new powers in this area?

Michael Corrigan:  That's a controversial discussion.  Our law at the moment does deal with collusion quite effectively but it does require more than just communications between competitors. 

It really looks for some evidence that the competitors have formed an understanding between them which implies some commitment that they all act on the initiative that's put to them, that is, they all join in the price rise or whatever the proposal is. 

Signalling on the other hand is really about just the communication of the idea of a new price rise and doesn't actually require any proof or response.

Kate Ritchie:  So how will the new bill work?  What kind of communications will be prohibited?

Michael Corrigan:  Well, it will focus on the mere act of communicating in two different ways. The first is what's called a private communication to a competitor.  It might occur behind closed doors, as it were.

Secondly, the bill will also tackle public announcements or disclosures such as those made by a company through its ASX disclosures or analyst briefings and so on.  There will be a few exceptions but these are fairly narrow.  Communications which are authorised by law will be permitted, as will communications to a competitor that also happens to be a customer or supplier in some way.

Kate Ritchie:  Is the bill clear on when the prohibitions may or may not apply or will it be something that I guess companies find confusing?

Michael Corrigan: Look I think there will be some real areas of doubt under this bill and there will be a significant compliance task for companies trying to judge whether or not they can proceed with a particular form of announcement or other communication. 

It is interesting to note that the reforms will initially only apply within the banking sector but the bill provides that it can be extended to other industries as well by regulation.  

Kate Ritchie:  So perhaps the petrol industry would be one that might be included down the track?

Michael Corrigan: Yes, the ACCC has already indicated they would support that extension.

Kate Ritchie:  There's been a lot of opposition to the changes by those claiming firstly that the ACCC already has ample power to act against this type of behaviour, and secondly that the proposed bill is too broad since it would catch communications that actually have no effect on competition.  Are these criticisms well founded?

Michael Corrigan: Yes, I think the criticisms have a lot of force behind them.  The bill throws a very broad net over communications and many believe the ACCC could do a little more with existing powers before we need these kinds of new rules. 

For example the Commissioner can today prosecute a company for attempting to reach a price fixing agreement by sending off a price signal which has the intention behind it of trying to get its competitors to move with it. 

The bill has also been criticised because although there are suggestions it will bring our law more into line with that in the United States and Europe, this bill will go quite a bit further than the laws in those jurisdictions. 

In these jurisdictions the law still requires some effect on competition to be established and that there is some collective action involved by the competitors generally.  The bill we have here though just focuses on the mere communications that are made, irrespective of their actual effect on the workings of the market.  It's a much stricter prohibition and I think it will actually push Australia's law well beyond these other jurisdictions.

 Kate Ritchie:  Michael, finally, what are the next steps for this draft legislation?

Michael Corrigan: Well, the Senate is due to hand in its report by the end of March.  We know there will be continued debate around this area.  I think there will be suggestions that the ACCC's concerns could be addressed in a more specific and targeted way because many are concerned that this bill will throw a very large compliance burden on legitimate kinds of communication, especially ASX listed companies, and you know there is considerable scepticism whether the bill will actually do anything to benefit consumers in the banking industry.

Kate Ritchie:  Certainly some really interesting insights there.  Thank you for your time today.

Michael Corrigan: Thanks Kate. 

Kate Ritchie:  That was Michael Corrigan, a partner in the Competition Group at Clayton Utz.  I)

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