Market definition in ACCC v Flight Centre Alice Muhlebach 8 March 2017 1
Overview • The role of market definition in this case – key statutory provisions • The market definitions adopted at first instance, by the Full Court, and by the High Court • Some observations on the High Court’s decision, and its possible implications for future cases 2
The role of market definition in this case - key statutory provisions Section 45 - Contracts, arrangements or understandings that restrict dealings or affect competition ... (2) A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: … (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: … (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition. (3) For the purposes of this section and section 45A, competition , in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services. 3
The role of market definition in this case - key statutory provisions Section 45A – Contracts, arrangements or understandings in relation to prices (1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other. Section 4E – Market For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services. 4
ACCC v Flight Centre Travel Group Ltd [2016] HCA 49 • Was Flight Centre supplying distribution Airlines services to the airlines? Were the airlines supplying those services to themselves? Supply of distribution Activities included • Were Flight Centre and the airlines services? operating flights supplying “booking services” to customers? and selling tickets directly • Agency If so, were those booking and distribution agreement Flight Centre services supplied in a market(s) other than the market in which the ticket was sold? Agent for the airlines in selling tickets (including making availability of tickets known to customers) Supply of booking services? Customers purchasing airline tickets 5
The market definitions adopted at first instance, by the Full Court, and by the High Court Markets identified by parties Decision at first Decision on appeal High Court instance (Full Court) Booking and distribution services Single market for ACCC (primary case) distribution and booking services Two separate markets for booking and distribution services in respect of No separate booking and distribution market No separate booking and available (Kiefel and Gageler JJ (French CJ, Nettle and (Dr Vince FitzGerald: single downstream market in which distribution market international air Gordon JJ agreeing)) booking and distribution services are supplied.) travel Supply of international air travel services Single market for the supply of contractual rights Flight Centre Flight Centre Market for the supply of to international air carriage (ie, tickets), in which • Market for supply of international air passenger services does not supply international passenger airlines and travel agents compete to supply services, or air travel services tickets to customers (Kiefel and Gageler JJ ACCC (alternative case) compete with (Nettle and Gordon JJ agreeing)) • Market for supply of international passenger air travel the airlines, in services (also identified separate alternative “wholesale” relation to the Single market in which international airlines market for supply of international passenger air travel supply of compete for the sale of air travel services, and in services, sitting above a “retail” market for supply of those international which Flight Centre participates as an agent (and services to consumers). passenger air not a competitor) of the airlines (French CJ) travel services 6
Some observations • Well settled principles, but some salutary reminders: • Commercially realistic markets • Cautionary notes for economists (and those retaining them) • Resolving a question about the “functional” dimension with an answer about the “product” dimension • Testing for a commercially realistic market definition: essentiality, artificiality, and single manufacturer/brand markets • Some questions for the future 7
For (vastly simplified) reference 8
In the matter of Fortescue Metals Group Limited [2010] ACompT 2 BHP Billiton, Fortescue • Tribunal identified four markets for rail Rio Tinto haulage, separate from the markets for supply of iron ore, and the supply of rail As for BHP track services Billiton, Rio • Geographic dimension: vicinity of the Tinto, but also Integrated mining, relevant railway line potentially a rail and port • supplier of third Functional dimension: observed facilities for party haulage separability, negotiations, demand, ? production of iron services on BHP Other miners ore power to withhold, feasible Billiton’s and Rio transaction costs Tinto’s railways May purchase rail • Customer perception, separate haulage from Fortescue, possibly business units not addressed BHP Billiton/ Rio Tinto • Post Flight Centre , query whether concerns arise re single supplier/brand product market? Customers purchasing iron ore 9
ACCC v Metcash [2011] FCAFC 151 Major supermarket • Metcash and Franklins competed to supply chains (solely self- Metcash and SPAR Franklins wholesale grocery services to independent suppliers) supermarkets; this competition occurred in Purchased groceries a market which was held to include both from suppliers, wholesaled them to wholesale supply and the supply of third party stores Purchased groceries groceries to retail customers by integrated, As at left, but from suppliers, self-supplying supermarket chains also provided wholesaled them to wholesale company owned retail supply to third • stores, and sold Constraints on standalone wholesalers Third party retailers party owned groceries to customers posed by the retail activities of self- retail stores from those stores Sold groceries to supplying supermarket chains was key to customers from this functional market definition retail stores • Outcome unlikely to be different post- Flight Centre , but would a constraints analysis have reached the same outcome Retail customers in Flight Centre ? 10
ACCC v ANZ [2015] FCAFC 103 ANZ • Held that ANZ did not compete with brokers in the market for the supply of “loan arrangement services”, because ANZ did not supply “loan arrangement services” (although it did engage in a subset of those Supplied loans and activities as part of its supply of loans) certain associated • Characterisation of service; substitution analysis services (advice, BROKERS assistance etc) re • Single supplier/product markets ANZ loans to retail Supplied loan • Limited significance of consumer perception, customers arrangement services for existence of separate business units a range of banks’ • Not a case about vertical integration … products, including comparison, advice, assistance etc; paid • Following Flight Centre , query outcome if different commission by banks market had been considered? Supply of loan arrangement services? Retail customers 11
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