FuelWatch: a tale of two interventions

Late last year, the federal government’s FuelWatch legislation was defeated in the Senate. And in May 2007 the Full Federal Court handed down the decision of ACCC v Leahy Petroleum Pty Ltd [2007] FCA 794. What could these two developments possibly have in common?

The short answer is that they illustrate some of the underlying tensions behind so-called ‘competition law’ and in particular, laws directed at price fixing cartels.

In ACCC v Leahy, the Federal Court, after four years of litigation by the Australian Competition and Consumer Commission (ACCC) at great financial cost to all parties concerned, dismissed price fixing charges against a group of eight Geelong petrol retailers. The ACCC had alleged that the retailers had engaged in price fixing in contravention of section 45 of the Trade Practices Act 1974 (TPA) through telephone calls discussing the amount and timing of petrol price rises.

The Court dismissed the case because the oral evidence tendered by the ACCC’s witnesses had merely established that there were discussions about prices between the retailers. The ACCC was, however, unable to establish that there had been any commitment by the parties to act in any particular way as a result of such discussions.

Indeed, the Federal Court noted that there was other evidence that contradicted such an interpretation. For example, sustained increases in petrol prices had also occurred in the absence of such phone calls and the parties had continued to make such calls even after it was revealed that the ACCC was investigating these practices, which at least suggests that they didn’t think they had anything to hide.

The Court held that the mere passing of information about prices, which was all that the ACCC had been able to establish, and upon which it pinned its ultimately multimillion dollar litigation, was insufficient to establish the existence of a price-fixing cartel in contravention of the TPA.

Fast forward a bit to November 2008 when the government’s FuelWatch Bill was defeated in the Senate. The government had been selling this Bill as a win for the consumer. For instance, both the Prime Minister and Assistant Treasurer had claimed that the FuelWatch scheme would lead to downward pressure on petrol prices. Yet ironically, one of the key elements of FuelWatch was that petrol retailers would have to notify the ACCC of the next day’s petrol price. Once this information went up on a government website, the retailers would then be required to keep their prices at that notified level for 24 hours.

Consider how similar in substance the publishing of prices on a government website really is to the ‘information exchange’ by phone arrangements that the ACCC spent four years prosecuting. Justice Gray in ACCC v Leahy pointed out that the mere fact that petrol stations publicly displayed board prices would itself already have aided any efforts by petrol stations to maintain some price uniformity in addition to their regular phone calls. A government-mandated website for posting up the petrol prices of retailers across Australia rather than just Geelong, would, presumably given the ACCC’s concerns, have multiplied significantly any opportunities for petrol retailers throughout the country to collude, relative to the situation in ACCC v Leahy. Any such collusion opportunities would then have been rendered even more potentially successful by the requirement that petrol retailers not change their prices for 24 hours.

One objective of FuelWatch was to remedy a supposed ‘information asymmetry’ between retailers and consumers, whereby, it was claimed, petrol retailers had better access to pricing information than consumers. In particular, and without any apparent sense of irony, both the ACCC Chairman and Petrol Commissioner placed part of the blame for this information asymmetry on a company called Informed Sources.

The reason? Informed Services provided fuel price data on a subscription basis, and its subscribers were primarily from the petrol and retail industry. Yet these same groups would have continued to have access to such information for free via the proposed FuelWatch website.

Of course, one difference between the Informed Sources service and the proposed FuelWatch website was that FuelWatch would also be publicly accessible to consumers.

But market forces would have gradually resolved this ‘information asymmetry’ anyway – a subsidiary of Informed Sources called MotorMouth was already supplying information for price comparisons to consumers via such bodies as the various automotive associations, radio stations and newspapers.

In summary, the comparison between the proposed FuelWatch scheme and the case of ACCC v Leahy is replete with a number of ironies. The greatest of these is that an entire retail market narrowly escaped the imposition on it by government fiat of arrangements that in another context were regarded by the ACCC as potentially cartelising. What this has to say about the effectiveness of legislative schemes for improving markets or alternatively the appropriate scope of competition law is open to debate.

Jason Soon is an independent economic consultant and a Visiting Fellow at The Centre for Independent Studies.