Monday, 9 December 2013

A win for the ACCC - petrol will be dearer

Last week I posted about the increasingly difficult calls competition authorities are having to make about business behaviour, and I mentioned as an especially vivid example the ACCC's investigation into what the Aussies call "shopper dockets", petrol discount vouchers issued by the two big supermarket chains. When the petrol discounts get large, are they demonstrating vigorous competition between supermarkets, with large pro-consumer payoffs in the form of much cheaper petrol, or is the Aussie supermarket duopoly trying to drive third-party petrol retailers out of business?

I'd speculated that this was proving a tough one for the ACCC to call (their investigation was getting somewhat overdue, and my guess is that they were having a vigorous internal debate), when on Friday out popped a media release from the ACCC, 'Coles and Woolworths undertake to cease supermarket subsidised fuel discounts'. The key bits were a freeze of 4 cents per litre on discounts to the end of this year, and from next year a new regime where discounts (which could be greater than 4 cents) must be funded from the petrol business and not subsidised from the supermarket business. As the chair of the ACCC said, it's a win of sorts - "We’ve accepted the undertakings because they address the ACCC’s principal competition concerns and allow the matter to be resolved quickly and efficiently" - but it's also a big kick for touch on the substantive issue ("The ACCC’s investigation was nearing completion...although we had yet to make a decision in the matter").

Having declared victory, I'd guess the ACCC could well decide there's now no need to make a definitive conclusion on their investigation, and if they do flag it away, then I can understand their call from various perspectives, including not wasting the taxpayer's dollar on an investigation that is now moot for all practical purposes. Especially as the ACCC has also warned off any other (non-supermarket) organisations minded to get into the petrol discount game in any serious way.

At the same time I'd be disappointed if it all gets swept under the bed.

For one thing, it's usually better if everyone - business, consumers, the ACCC itself - know exactly where they stand. The supermarkets still say they were doing nothing wrong: you don't want to get into a highly uncertain multi-million-dollar legal stoush with your competition authority if you can help it, and the undertakings avoided one, but equally businesses oughtn't have to give up what they genuinely believe to be okay deals because it's too risky or expensive to prove that they are. And consumers ought to be given the full chapter and verse on exactly why their big petrol discounts have just been vapourised.

And for another, while it's a close call, I think the ACCC may be wrong.

I should say, up front, that I have a low tolerance for abuse of market power or other anti-competitive rorts, and in the past I've willingly climbed out of the trenches with my former Commerce Commission comrades and crossed No Man's Land under enemy fire towards successful s27 and s36 Commerce Act prosecutions. And I'd do it again.

But I struggle to see abuse in this shopper docket case.

Let's look at what the ACCC thought was wrong. Its chair, Rod Sims, said that "we were concerned that those offers could have longer-term effects on the structure of the retail fuel markets and also short term effects of increasing general pump prices in those markets".

The first point ("longer-term effects on the structure of the retail fuel markets") is that the supermarkets might drive the other petrol retailers out of the market, eventually leaving petrol buyers at the mercy of a supermarket petrol duopoly. That, presumably, is why he said, in this article in the Sydney Morning Herald, that "the deal was a win for the 80 per cent of Australian consumers who don't use fuel shopper dockets", meaning that "we've saved your local petrol station from potential extinction". I doubt if the 80% are feeling ecstatic about this "win" right now, and the 20% will be mightily brassed off at big discounts being outlawed. I also wonder how long would it take for the supermarkets' 20% to grow to 100%, what would be the quantum of benefits shoppers would get along the way through their shopper docket discounts, and how big any post-100% price rises would have to be to counteract the earlier benefits. But in any event let's take this first point at its face value.

The second point ("short term effects of increasing general pump prices") is rather more mysterious, since you'd expect the vouchers to have lowered effective prices. I presume it means that the discounts are off retail prices that have been partially jacked up to help pay for the discount. For example, you pull up at a supermarket petrol station, see the "retail" price is (say) $2.20 a litre, get 10 cents off, pay $2.10 net, and feel you got a good deal. Except that the general retail price isn't $2.20, but maybe $2.14, and your genuine discount is only 4 cents. People turning up at a supermarket station without a voucher (if there are such folk) will get ripped off at the higher $2.20 price. And maybe the independent petrol retailers have been slipping in behind the supermarket "retail" prices and raising theirs a bit, too. If I've misinterpreted this point, someone let me know.

On both points, I don't much care who sells petrol to me, as long as there's still a workably competitive market in the stuff. If there is vigorous competition for my business from the supermarket stations, that'll do. If they settle into a cosy oligopoly after eliminating everyone else, then I might be more worried. But I can't see what would prevent re-entry into the petrol retailing markets if the supermarkets started to push their luck too hard, just as fruit and veg shops and butchers (after earlier being decimated) have re-emerged to give shoppers a better deal than the supermarkets do. Using the numbers in the earlier example, if the supermarkets decided to take advantage of having the field to themselves, jacked up the price to (say) $2.25, and started offering lower discounts, say 5 cents, then the net price to the petrol buyer is $2.20. But independents can operate perfectly happily at $2.14.

Show me a good story that says, the supermarkets will kill everyone else off, and keep new entrants out after doing so, and I might change my mind. But I can't see it at the moment.

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