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

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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.

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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 orservices 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

Airlines

Activities included operating flights

and selling tickets directly

Customers purchasing airline tickets

ACCC v Flight Centre Travel Group Ltd [2016] HCA 49

Flight Centre

Agent for the airlines in selling tickets (including

making availability of tickets known to

customers)

• Was Flight Centre supplying distribution services to the airlines? Were the airlines supplying those services to themselves?

• Were Flight Centre and the airlines supplying “booking services” to customers?

• If so, were those booking and distribution services supplied in a market(s) other than the market in which the ticket was sold?

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Agency agreement

Supply of distribution services?

Supply of booking services?

The market definitions adopted at first instance, by the Full Court, and by the High Court

Markets identified by parties Decision at first

instance

Decision on appeal

(Full Court)

High Court

Booking and distribution services

ACCC (primary case)

Two separate markets for booking and distribution services

(Dr Vince FitzGerald: single downstream market in which

booking and distribution services are supplied.)

Single market for

distribution and

booking services

in respect of

available

international air

travel

No separate booking and

distribution market

No separate booking and distribution market

(Kiefel and Gageler JJ (French CJ, Nettle and

Gordon JJ agreeing))

Supply of international air travel services

Flight Centre

• Market for supply of international air passenger services

ACCC (alternative case)

• Market for supply of international passenger air travel

services (also identified separate alternative “wholesale”

market for supply of international passenger air travel

services, sitting above a “retail” market for supply of those

services to consumers).

Flight Centre

does not supply

services, or

compete with

the airlines, in

relation to the

supply of

international

passenger air

travel services

Market for the supply of

international passenger

air travel services

Single market for the supply of contractual rights

to international air carriage (ie, tickets), in which

airlines and travel agents compete to supply

tickets to customers (Kiefel and Gageler JJ

(Nettle and Gordon JJ agreeing))

Single market in which international airlines

compete for the sale of air travel services, and in

which Flight Centre participates as an agent (and

not a competitor) of the airlines (French CJ)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

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For (vastly simplified) reference

8

BHP Billiton, Rio Tinto

Integrated mining, rail and port facilities for

production of iron ore

Fortescue

As for BHP Billiton, Rio Tinto, but also potentially a supplier of third party haulage services on BHP Billiton’s and Rio Tinto’s railways

Customers purchasing iron ore

In the matter of Fortescue Metals Group Limited [2010] ACompT 2

Other miners

May purchase rail haulage from

Fortescue, possibly BHP Billiton/ Rio

Tinto

• Tribunal identified four markets for rail haulage, separate from the markets for supply of iron ore, and the supply of rail track services• Geographic dimension: vicinity of the

relevant railway line• Functional dimension: observed

separability, negotiations, demand, power to withhold, feasible transaction costs

• Customer perception, separate business units not addressed

• Post Flight Centre, query whether concerns arise re single supplier/brand product market?

?

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Major supermarket chains (solely self-

suppliers)

Purchased groceries from suppliers,

wholesaled them to company owned retail

stores, and sold groceries to customers

from those stores

Franklins

As at left, but also provided

wholesale supply to third party owned retail stores

Retail customers

ACCC v Metcash [2011] FCAFC 151

Metcash and SPAR

Purchased groceries from suppliers,

wholesaled them to third party stores

Third party retailers

Sold groceries to customers from

retail stores

• Metcash and Franklins competed to supply wholesale grocery services to independent supermarkets; this competition occurred in a market which was held to include both wholesale supply and the supply of groceries to retail customers by integrated, self-supplying supermarket chains

• Constraints on standalone wholesalers posed by the retail activities of self-supplying supermarket chains was key to this functional market definition

• Outcome unlikely to be different post-Flight Centre, but would a constraints analysis have reached the same outcome in Flight Centre?

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ANZ

Supplied loans and certain associated services (advice, assistance etc) re

ANZ loans to retail customers

BROKERS

Supplied loan arrangement services for

a range of banks’ products, including comparison, advice, assistance etc; paid

commission by banks

Retail customers

ACCC v ANZ [2015] FCAFC 103

• 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 activities as part of its supply of loans)• Characterisation of service; substitution analysis• Single supplier/product markets• Limited significance of consumer perception,

existence of separate business units• Not a case about vertical integration …

• Following Flight Centre, query outcome if different market had been considered?

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Supply of loan arrangement services?