Malcolm Maiden
May 16, 2012
The Age
The commission is hoping the latest probe will finally resolve the legality of price-sharing.
I WOULDN’T go so far as to say that Australian Competition and Consumer Commission chairman Rod Sims is tilting at windmills with his new investigation into price information-sharing by the big petrol retailers. He is, however, engaging a collective that has parried similar thrusts before.
The group that supplies the price data, Informed Sources, was set up by Alan Cadd in Brisbane in 1987. The internet hadn’t arrived, and Cadd sent people out in cars to collect service station petrol prices that he sold back to the big petrol retail chains.
By 1993 the retailers had put information technology systems in place that allowed them to track prices nationally in their own service stations, and Cadd saw the potential.
He went to the petrol groups and suggested that he collect the price data, combine it, and send it back to them, with a time lag that ensured it was historical information, and not real-time price information that could raise concerns about price-fixing.
Cadd formally presented the concept to the ACCC’s predecessor, the Trade Practices Commission. No objections were raised.
He still employs drivers to cross-check the information that he downloads from petrol stations, and a gaggle of smaller service station operators are signed up to the data service.
Even the ACCC is a client: it pays for a regular dump of historical prices, and also requisitions data for work it is undertaking – and has done so again, in fact, for the new probe.
The real guts of the business, however, is the automatic collection of petrol prices from a handful of big service station chains – Shell, Caltex, BP, 7-Eleven, Coles and Woolworths – and the streaming of the combined data back to them, on a delay of about half an hour.
The retailers obviously use the information to frame their pricing tactics. Informed Sources is therefore a major contributor to the weekly petrol price cycle, which usually sees prices come down early in the week and then expand again as the weekend looms.
The crucial question though is whether the big petrol retailers are using the information to become more competitive, or less competitive: all companies check competitor prices, and react. And while the petrol price cycle sees profit margins tighten around midweek and then expand, the pattern is changing: the cheapest day was Tuesday, but it has been moving towards the end of the week as the big retailers hold their prices down longer.
Three legal opinions about the legality of the Informed Sources network were sought by the ACCC before the arrival of Rod Sims as chairman of the regulator in August last year. None of them concluded that the information-sharing network was illegal.
The ACCC lobbed a section 155 discovery notice on Cadd around lunchtime on May 3, and announced publicly that it had commenced a formal investigation into price information sharing in the industry.
ACCC commissioner Joe Dimasi said the ACCC had already put the petrol industry ”on notice” about its concerns that data sharing enabled the big petrol retailers to ”quickly signal price movements, monitor competitors’ responses and react to them”.
There is certainly a history of ACCC concern. The regulator has launched and lost two Federal Court price-fixing cases against petrol retailers, in Geelong in 2007 and in Ballarat in 2005. Both courts decided that in the absence of an explicit contract, an arrangement or understanding to fix prices required a commitment to actually fix prices: the sharing of information and the existence of common pricing do not, in other words, by themselves demonstrate price-fixing.
In a 2007 report on petrol pricing, the ACCC also stated that there was an ”imbalance” between what the petrol majors knew about prices, and what consumers knew. The Informed Sources data feed to the big groups was ”… conducive to anti-competitive co-ordination, particularly in concentrated markets”, it said, adding that possible responses included a move to restrict price-sharing, or the creation of an equivalent flow of information to consumers.
The second option, a national price information scheme, was unsuccessfully attempted by the ACCC, at the behest of the Rudd government. The first option, a move to restrict or halt the information flow to the majors, runs up against the earlier advice that the data feed is legal.
The ACCC nevertheless signalled continuing concern in late 2009, when it stopped Caltex’s acquisition of 300 Mobil service stations, in the belief that a more powerful Caltex could use Informed Sources data to ”co-ordinate” petrol pricing, the recovery from mid-week discounting in particular.
Sims will be hoping that the new investigation finally and firmly decides whether the petrol price-sharing system is legal. If it decides that it is legal, as has to be likely, he then will be able to argue, as former ACCC chairman Graeme Samuel did before him, that the ban on price-signalling by the banks that the government is implementing is too narrow, and should be extended. The Coalition agrees.
The petrol price database might survive even if a price-signalling ban was extended to the industry, however. An intentional loophole in the bank signalling ban allows the banks to exchange information in the ordinary course of business: the Informed Sources database might qualify for the same carve-out.
mmaiden@theage.com.au
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