Posts tagged #Luke Wainscoat

Airports not exercising market power – Productivity Commission

February 2019

The Productivity Commission today released its draft report on the Economic Regulation of Airports. 

We recently prepared analysis for Australia’s major airports and showed that airports have not been exercising market power in aeronautical, car parking or ground access services.

The draft report finds that existing airport regulation benefits the community and remains fit for purpose, and agrees with our analysis that Australia’s four major airports have not systematically exercised market power.

In aeronautical services, airports are constrained by the countervailing power of airlines, and generate “returns sufficient to promote investment while not earning excessive profits”. Prices at airport car parks are “not the result of market power”, but reflect the high opportunity cost of land near airport terminals, and act as signals to manage demand and reduce congestion. Airports are constrained in car parking by the myriad ways to access the airport.

The PC also finds that the current approach to regulation works well and wholesale changes are not justified. Instead, it recommends updating the current monitoring regime so that airports include more detail in their cost and revenue reporting to assist in future assessments on the effectiveness of regulation.

The PC is now accepting feedback on the draft report ahead of the final report in June.

The HoustonKemp team advising Australia’s major airports included Greg, Luke, Brendan, Sarah, Bronwyn, Alyse and Nick.

Applying economics to the analysis of mergers and vertical restraints

October 2018

Luke Wainscoat gave a lecture on how economics can be applied to assess the effect that mergers and vertical restraints have on competition at the University of Sydney. His lecture sets out some of the economic analysis and techniques that can be used to examine whether a merger will substantially lessen competition.

Luke explained what vertical restraints are, and some of the main anti and pro-competitive effects that they may have on competition, before setting out a mechanism by which the vertical restraints that are likely to substantially lessen competition can be identified. Luke’s presentation is available here.

Posted on October 18, 2018 and filed under Presentations.

Airport market power ‘fact check’

September 2018

Today the ACCC submitted to the Productivity Commission’s inquiry into airport regulation that the current price monitoring regime is not effective in constraining airports’ market power, and that increased regulatory intervention is required (see here). But the ACCC’s evidence for the exercise of market power is thin: an assertion as to rising average revenues per passenger and quality of service metrics that remain ‘stable’. Substantial new investment in runway and terminal capacity has been overlooked, and the ACCC’s average revenue per passenger metric is heavily distorted by the changing mix of international and domestic passengers.

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HoustonKemp analysis for the Australian Airports Association (see here) shows a very different picture. The long term profitability of aeronautical services provided at each of the four monitored airports show no signs of market power, with returns on investment over ten years all converging to within the range of weighted average cost of capital estimates previously adopted by the ACCC itself and New Zealand’s Commerce Commission.

We look forward to the Productivity Commission’s evidence-based analysis.

Posted on September 18, 2018 and filed under Reports.

Airport market power – taking off or pie in the sky?

August 2018

Greg, Luke, Sarah, Bronwyn and Nick recently advised Australia’s four major airports as part of the Productivity Commission’s inquiry into airport regulation. We analysed the extent to which the airports have market power in car parking and ground access, and whether they have used any such power.

Our analysis shows that, despite the ACCC’s repeated claims of “very high” profit margins (see here), the airports do not appear to be exercising market power in the provision of car parking or ground access services. Indeed, car parking prices appear to be explained to a significant extent by locational rents and convenience premiums, which are key elements of efficient pricing.

The airports are materially constrained in car parking by off-airport car parking operators and the availability of many other transport options with a diverse range of features and prices. The airports also have a strong incentive to maximise the number of visitors accessing the airport, since ground access revenues tend to represent only a small proportion of total airport revenue.

Our reports can be found here: Brisbane Airport, Melbourne Airport, Perth Airport and Sydney Airport.

Posted on September 11, 2018 and filed under Reports.

The economics of regulation – some examples from Australia

August 2018

Luke Wainscoat gave a lecture on competition policy and how regulation is applied in Australia at the University of Sydney. This lecture is part of an undergraduate course on the economics of regulation. In the lecture Luke provided an introduction to competition policy and regulation before describing how airports, railways and electricity distributors are regulated in Australia. The lecture finished by providing an overview of the access regime in Australia. The slides to the lecture can be found here.

Posted on August 21, 2018 and filed under Presentations.

Queensland’s declaration triple-header takes shape

July 2018

The three, newly minted, economic criteria governing the ‘declaration’ of infrastructure services under Part IIIA of the Competition and Consumer Act 2010 (CCA) are being given a thorough work out in an unprecedented, triple-header declaration review being undertaken by Queensland’s Competition Authority (QCA).

In the 23 year history of the Competition and Consumer Act 2010 (CCA) framework for third party access, no infrastructure service in Queensland has been formally assessed against the declaration criteria. Side-stepping the national regime, the state of Queensland deemed three services to be declared and developed bespoke regimes for the economic regulation of their terms of access. Those declared services are:

  • below rail services provided by Aurizon’s central Queensland coal network;
  • coal handling services provided at Dalrymple Bay coal terminal (DBCT); and
  • below rail services provided by Queensland Rail’s network, comprising all Queensland’s rail lines other the coal network operated by Aurizon.

Following legislative change in 2010, the declared status of each these services is set to expire in September 2020, and the QCA is charged with undertaking a review and recommending whether each should continue to be declared. The Queensland Treasurer will be the ultimate decision-maker, upon recommendation from the QCA.

Source: Shutterstock

Source: Shutterstock

The declaration criteria to be applied by the QCA are essentially the same as those under the national access regime set out in the CCA, but with two important procedural distinctions. First, the declaration review body (normally, the independent National Competition Council) is the same as that which regulates the services concerned. A QCA recommendation that any of the services should no longer be declared would see it voting to discontinue a substantial portion of its existing functions. Expect close scrutiny of the QCA’s reasoning for any hint of self-interest.

Second, there is no right for interested parties to seek merit-based review of the Treasurer’s decision. In contrast, most declaration decisions made under the national regime have been referred for merits review by the Competition Tribunal and, in several instances, judicial review by the Full Federal Court. On three occasions, critical elements of the declaration regime have been decided by the High Court. Expect close scrutiny of the QCA’s reasoning (or, if different, that of the Treasurer) for any hint of procedural or legal irregularity.

Source: Dalrymple Bay Coal Terminal Pty Ltd

Source: Dalrymple Bay Coal Terminal Pty Ltd

The Queensland process presents complex issues, each to be assessed against new criteria. The service providers have all contended their particular service should no longer be declared, but each cites different combinations of criteria that are said not to be satisfied:

  • Aurizon contends that its continued declaration does not satisfy the criterion (d) net public interest test, citing evidence of ‘regulatory failure’ under the present regime;
  • DBCT Management maintains that its service does not satisfy the material promotion of competition test under criterion (a), the criterion (b) natural monopoly test, and that its continued declaration is not in the public interest, as required by criterion (d); and
  • Queensland Rail contends that its heavily subsided services do not satisfy declaration criteria (a) or (d), that competition from road may mean its rail lines do not satisfy the criterion (b) natural monopoly test, and that five of its eight rail systems do not meet the Queensland significance test under criterion (c).

All four criteria must be satisfied for a declaration recommendation to be made.

The various submissions from service providers and users are supported by legal opinions and expert economic reports, as well as a second round of further material submitted in response to the first. Come late July, the QCA will slip into ‘regulatory purdah’ to consider all the material, with its eagerly awaited, precedent-setting draft decision anticipated by December 2018.

HoustonKemp’s economic experts are advising DBCT Management and Queensland Rail throughout the declaration review, and have filed four expert reports for consideration by the QCA.

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.

Competitive effects of office product suppliers merger

November 2017

Greg prepared two expert reports on behalf of Complete Office Supplies that, with the assistance of Luke and Tony, were submitted to the High Court of New Zealand. Complete Office Supplies’ brought injunction proceedings to prevent Platinum from acquiring rival office supplies firm OfficeMax. The Commerce Commission subsequently joined the proceedings. Later Platinum agreed to divest Winc to a purchaser approved by the Commission once it acquired OfficeMax.

Posted on November 29, 2017 and filed under Reports.

An example of using data analytics in a competition matter

November 2017

Luke Wainscoat gave a presentation at the Rising Stars Workshop on the use of data analytics in competition matters. His presentation showed how a new and very detailed dataset of financial transactions could be used to help determine the geographic dimension of retail markets. The analysis indicated that the ACCC may have adopted an overly narrow geographic market in a statement of issues regarding a proposed supermarket acquisition. The presentation is available here.

Posted on November 20, 2017 and filed under Presentations.

Applying economics to the analysis of mergers and vertical restraints

October 2017

Luke Wainscoat gave a lecture on how economics can be applied to assess the effect that mergers and vertical restraints have on competition at the school of economics in the University of Sydney. His lecture sets out some of the economic analysis and techniques that can be used to examine whether a merger will substantially lessen competition.

Luke explained what vertical restraints are, and some of the main anti and pro-competitive effects that they may have on competition, before setting out a mechanism by which the vertical restraints that are likely to substantially lessen competition can be identified. Luke’s presentation is available here.

Posted on October 27, 2017 and filed under Presentations.

The economics of regulation – some examples from Australia

August 2017

Luke Wainscoat gave a lecture on competition policy and how regulation is applied in Australia at the University of Sydney. This lecture is part of an undergraduate course in the school of economics on the economics of regulation. In the lecture Luke provided an introduction to competition policy and regulation before describing how airports, railways and electricity distributors are regulated in Australia. The lecture finished by providing an overview of the access regime in Australia. The slides to the lecture can be found here.

Posted on August 21, 2017 and filed under Presentations.

HoustonKemp economists recognised for their expertise

June 2017

HoustonKemp is proud to announce that some of our colleagues have been recognised as leading economic consultants in publications by Who’s Who Legal. Luke Wainscoat has been listed in Competition: Future Leaders 2017, which includes competition economists aged 45 or under, whilst Carol Osborne and Greg Houston have once again been named in Consulting Experts: Competition Economists 2017, which lists the best consultant expert witnesses and advisers on economics in the world.  

Who’s Who Legal describes Greg as a “talented” expert widely acclaimed for providing “top-drawer, case-winning economic analysis” in court proceedings and regulatory tribunals.

Posted on June 1, 2017 and filed under Announcements.

Expert report on proposed merger

May 2017

Greg Houston prepared an expert report for Minter Ellison in relation to the application before the Australian Competition Tribunal by Tabcorp for authorisation to acquire Tatts. The report examines the effect of the proposed merger on competition, and the public benefits that are likely to arise. Greg was assisted by a number of our team including Luke Wainscoat, Sarah Turner, Daniel Young, Sam Forrest, Stuart Morrison and Sarah Nelson. The report is available here.

National Disability Insurance Agency price review

March 2017

We are very pleased to be helping the National Disability Insurance Agency (NDIA) with the review of its price controls. Sam Forrest, Luke Wainscoat, Adrian Kemp and Greg Houston will design an impact assessment framework to assess potential changes to the NDIA’s price controls. They will draft a consultation paper on the options being considered and apply the impact assessment to prepare recommendations to the NDIA on the changes it should make to its price controls in 2017/18. For more information on the review please click here.

Posted on March 9, 2017 and filed under Announcements.

Applying economics to the analysis of mergers and vertical restraints

October 2016

Luke Wainscoat gave a lecture on how economics can be applied to assess the effect that mergers and vertical restraints have on competition at the school of economics in the University of Sydney. His lecture sets out what questions economists can help address in order to determine whether a merger is likely to lead to a substantial lessening of competition. It also sets out some of the types of analysis that can be used, and the conditions under which they are appropriate.

Luke explained what vertical restraints are, and some of the main anti and pro-competitive effects that they may have on competition, before setting out a mechanism by which the vertical restraints that are likely to substantially lessen competition can be identified. Luke’s presentation is available here.

Posted on October 6, 2016 and filed under Presentations.

The economics of regulation – some examples from Australia

August 2016

Luke Wainscoat gave a lecture on competition policy and how regulation is applied in Australia at the University of Sydney. This lecture is part of a new unit on the economics of regulation, which is part of the economics program. In the lecture Luke explained what competition policy and regulation are before describing how airports, railways and electricity distributors are regulated in Australia. The lecture finished by providing an overview of the access regime in Australia. The slides to the lecture can be found here.

Posted on August 12, 2016 and filed under Presentations.

Petrol prices in Perth

March 2016

Luke Wainscoat and Sarah Turner have used data provided by Nick de Roos at the University of Sydney to depict the pattern of price changes for retail petrol in Perth, over the decade from 2003 to 2013. This video summarises that dynamic, in the form of a chart that shows:

  • the change in the petrol price from one day to the next (cents per litre) on the vertical axis;
  • the number of days since the beginning of the current petrol price cycle on the horizontal axis, where each cycle is taken to commence when the change in prices across all outlets is positive; and
  • the degree of uniformity of price changes across outlets, with darker shades of red indicating that more petrol stations changed their prices by a given amount on a particular day of the cycle. 

The video highlights that:

  • petrol price cycles occurred frequently from 2003 to mid 2004;
  • price cycles were few and irregular between mid-2004 and early 2006;
  • fortnightly price cycles occurred regularly from mid 2006 to mid 2008; and
  • a weekly price cycle began in early 2009, which became more prominent and regular from 2010.

The paper prepared by Nick de Roos and David Byrne with the same data is here.  

Posted on March 31, 2016 and filed under Presentations.

An introduction to competition economics

March 2016

Luke Wainscoat gave two lectures on an introduction to competition economics to students at the Sydney University Law School as part of its undergraduate course on competition law. The topics Luke discussed were:

  • the demand and supply model;
  • perfect competition vs. monopoly;
  • economic welfare and market power;
  • barriers to entry;
  • game theory;
  • price and quantity setting competition; and
  • collusion and predatory pricing.

Luke’s slides can be found here and here.

Posted on March 10, 2016 and filed under Presentations.

The Economics of Market Power

July 2015

Luke Wainscoat gave a presentation to Baker and McKenzie in Sydney on the economics of market power. It provided an introduction to the topic, including setting out what market power is, and explaining how it is affected by potential entrants and firms already in the market.

Luke’s presentation can be found here.

Posted on July 27, 2015 and filed under Presentations.