Not quite a cartel: Applying the new concerted practices prohibition

March 2018

Luke Wainscoat and Caitlin Davies have an article in the most recent issue of the Competition and Consumer Law Journal (volume 25, part 2) looking at how the new concerted practices prohibition should be applied, and how it is likely to be applied, based on overseas experience.

The new law has two limbs - it prohibits:

  1. one or more persons engaging in a concerted practice;
  2. that has the purpose, or has or is likely to have the effect, of substantially lessening competition (SLC).

A concerted practice is likely to include a wide range of conduct if the ACCC’s guidelines and overseas experience is any guide (although Australian courts may not go along with this). This includes every communication of private and competitively sensitive information between firms, including one-off conversations.

This would leave the SLC test to do a lot of work, and there has been little, if any, debate about how that test should be applied to concerted practices in Australia.

Luke and Caitlin argue that examining whether some conduct is likely to have an SLC purpose or effect requires more than a checklist of factors to mechanically assess the state of competition in a market with and without the conduct. What is needed to avoid overreach is a principled approach, based on sound economic theory, supported by facts, to demonstrate how conduct will negatively impact competition.

In particular, Luke and Caitlin suggest that the SLC test be applied as follows:

1) Assess the degree of competition in the factual, i.e. with the information sharing. This should include a coherent theory of harm – that is, an explanation of how the information sharing would cause competition to be substantially lessened relative to the counterfactual. The assessment should be:

  • based on a theory that is economically sound;
  • internally consistent; and
  • consistent with the facts of the case.

2) Assess the degree of competition in the counterfactual, i.e. without the information sharing, consistent with the theory of harm.

3) Assess the difference between the degree of competition in the factual and counterfactual

In the case of concerted practices, the theory of harm will almost always be that there will be an increased risk of collusion, in which case there will only be an SLC if collusion is made more likely by the conduct. Determining that question in any given case will require an examination of whether the market structure, conduct of firms and market outcomes are consistent with collusion or competition.

This is similar to the approach in the United States which uses ‘plus factors’ to determine whether conduct is consistent with self-interested unilateral behaviour, or with collusion. In other words, they can be thought as of evidence that the collusive theory of harm is more likely than an alternative theory that firms were competing unilaterally. We expect that cases in Australia could make use of similar types of evidence as that used in the United States, such as:

  • evidence of market structure identifying the features of the market in question which make it more or less likely that conspiracy will occur – for example, levels of concentration, barriers to entry, and availability of information; and
  • evidence that the market, and the competitors within it, actually behaved in a competitive or non-competitive manner – for example, fixed market shares, exchanges of price information, identical bids, and previous overt price fixing in the industry.
Posted on April 11, 2018 and filed under Announcements.