ECONOMICS: by Patrick J. ByrneNews Weekly
Birdsville Amendment stops fuel predatory pricing
, December 12, 2009
In the first test for the 2007 Birdsville Amendment, aimed at stopping predatory pricing by large retailers, the ACCC has blocked a supermarket plan to sell fuel at a heavy discount.Coles had planned to offer a new round of so-called discounts of up to 40 cents per litre on fuel as a reward to customers for purchasing Coles groceries valued between $100 and $300. The Australian Competition and Consumer Commission (ACCC), however, deemed the scheme to be predatory pricing and blocked the plan.
According to Associate Professor Frank Zumbo, a competition and consumer law expert at the University of New South Wales, "ACCC was correct in stopping the promotion."
He said: "The promotion would have meant that Coles would have been selling petrol below cost for a sustained period. Selling petrol below cost for sustained periods of time is a real and substantial threat to competition in the petrol industry.
"Such tactics are more commonly known as predatory pricing and are dangerous to competition as they are often thinly disguised tactics to drive the independent petrol retailers out of the market.
"Once the independents are gone, companies like Coles can simply put up their prices."
Extended below-cost selling of petrol for an anti-competitive purpose is a breach of the 2007 Birdsville Amendment to the Trade Practices Act. The Birdsville Amendment protects competition by stopping companies, like Coles, from engaging in predatory pricing.
The Birdsville Amendment was an initiative of Queensland Nationals senator, Barnaby Joyce. It was passed by federal parliament, as a concession to small business, in the last days of the Howard Government.
It outlawed predatory pricing, whereby large retailers sell products at below cost for an extended period, with the purpose of putting smaller competitors out of business.
In 2008, the recently elected Rudd Labor Government planned to emasculate the legislation, and the Coalition, then in opposition, wavered on the issue. However, a concerted public campaign resulted in the Coalition finally saving the Birdsville Amendment by voting down Labor's planned changes.
Commenting on the ACCC decision, Senator Joyce said that it shows that Australian authorities now have the capacity to deal with any predatory activity by major players that is designed to send independent fuel retailers broke.
"We need to protect competition, and that means stopping predatory pricing. We need multiple players in the market to get a fair deal in the long term," he said.
Recently, Senator Joyce has put to federal parliament the Blacktown Amendment, another change to the Trade Practices Act, this time aimed at outlawing geographic price discrimination.
This occurs when big business charges a lower price only when threatened by competition from smaller independent firms in a given area, but charges a higher price in adjacent areas where there is no independent operator.
The Blacktown Amendment proposes to ensure that big businesses will charge the same price for the same product in the same geographic region, which is within a 35 km radius of its adjacent retail outlets. The concept of the same price includes any offer based on a discount, rebate, credit or allowance offered to customers.
For example, the oil company-owned service stations must charge the same price in a geographical area, stopping the practice of targeting and under-cutting the independents to drive them out of business, so that the oil company or the retail giants can then control the retail market in that area to the detriment of motorists.
Senator Joyce told parliament: "Over time, geographic price discrimination will lead to the demise of competition and the independent operator, allowing the retail giant to then set prices without any competitive pressure from those independents.
"The inevitable result is that consumers pay more once the independents are driven from the market.
"It is a courageous step indeed when new independent operators seek to enter the geographical area, marketing [at] lower prices and heralding the return of competition. However, the retail giants simply return to the practice of geographic price discrimination - squeezing the cash flow of the new independent business and driving them from the market.
"This creates an entrepreneurial wasteland - rarely will an independent be willing to suffer such losses and, worse, the banks are unwilling to support those willing to take the risk."
The Blacktown Amendment is named after the Sydney suburb of Blacktown, where fuel retailer Marie El-Khoury must pay a terminal gate price for her fuel, which is higher than that sold at the retail level by the larger company-owned service stations.Patrick J. Byrne is national vice-president of the National Civic Council.