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Tall poppy syndrome is alive and well

By David Flint - posted Friday, 19 October 2007

It was surprising to see so many commentators, not known previously for taking much of an interest in competition law, rush to condemn Richard Pratt, and with such vehemence. Mike Carlton, the ratings challenged breakfast radio host, said he should be going to jail. Sydney Morning Herald resident curmudgeon, Alan Ramsey, loaded his piece with intemperate abuse such as “liar” and “cheat”. Rather than a new found interest in the markets, it is likely these were no more than manifestations of that tall poppy syndrome which afflicts jaded members of the commentariat.

Richard Pratt’s offence seems to be in a vague imprimatur he gave en passant to some sort of understanding about prices proposed to his CEO by their competitor, Amcor. It would have not have been difficult to achieve the same result within the law. So it seems that whenever a major player in Australia chats with his chief executive officer, it would be prudent now to have a sharp lawyer present, however dulling that may be to the conviviality of the occasion.

Anyway, it seems that Amcor subsequently tipped off the ACCC about its own proposal, and for this act of gallantry has received immunity. Apparently what attracted Richard Pratt was not the pricing but the opportunity to take market share from Amcor.


The important point to note is that the cardboard container market is highly concentrated, little different from the markets in which the newspapers which carried the very personal attacks on Pratt also operate. Except for utopian socialists, there is nothing much to object to about concentrated markets. They are a fact of life. In a country like Australia, the market will support only so many cardboard container manufacturers or indeed newspaper publishers.

Now it is true that a price fixing agreement among a large number of suppliers, for example lawyers, can be effective. It can transform a number of individual or small entities into a powerful cartel, and they can impose a price significantly higher than if they had no such agreement.

But when it comes down to a highly concentrated market, an oligopoly, an agreement to fix prices is hardly necessary. Much the same result can be achieved by just watching the other player or players, and accommodating them. Often one emerges as the price leader. Its price is a signal to the others either to adopt the same price, or to adjust theirs. In practice, such “conscious parallelism” is little different from price fixing.

The participants have to avoid doing anything which their lawyers warn them could constitute, not so much as a formal contract but rather, an arrangement or understanding. If they make the mistake of sealing their conscious parallelism with even a nod or a wink, they may well change something both common and lawful into a breach of the law punishable by an extraordinarily large penalty. (I once wrote an article on this curious example of American legal casuistry in a French journal of comparative law.)

This is termed an offence per se, that is, you don’t have to prove that it actually led to higher prices. Just engaging in price fixing is an offence in itself. Some zealots even say it should be a criminal offence.

In fact, as with the newspaper market, the effect of price fixing is little different from conscious parallelism. One of the most distinguished US judges in this area, Robert H. Bork, has argued that the per se rule should be relaxed in certain circumstances. It would seem obvious where there is a wafer thin distinction between conscious parallelism and price fixing. There is a good case that in a concentrated market a price fixing arrangement should only constitute a serious offence where it can be shown that prices are, as a result, significantly higher. At the very least, this should be a significant consideration in whether to impose anything other than a nominal penalty.


It is not as if legislators oppose price fixing on principle - the Australian model grandfathering certain price fixing arrangements for exports. Perhaps the more relevant question is why the regulators don’t concentrate on those competition issues which impact on the lives of ordinary Australians: oil pricing for example.

For example, far too many small retail businesses have been sent to the wall through the predatory practices of the major retail outlets. The results can be seen in food prices, which will be blamed on the drought. Given the farmers’ take is a small portion of the price, it is difficult to see this. That much vaunted exercise in rational economics, dairy market deregulation, has resulted in significantly lower prices for the farmers, and significantly increased prices for the consumers. The only beneficiaries have been the retail oligopolists.

Another failure is the serf-like situation that so many in small business find themselves in the large retail centres. And when the Reserve Bank decided to diversify from fixing the price of money, that is interest, it decided to increasing competition in the provisions of credit cards. The only noticeable result is that you must now pay a high extra charge just for using your credit card to pay Telstra or Qantas.

Richard Pratt may well have crossed the line between conscious parallelism and proscribed price fixing. The line is as artificial as the moral outrage of some in the commentariat whose aggregated contributions to the nation would not be an infinitesimal proportion of Pratt’s. Such is jealousy.

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About the Author

David Flint is a former chairman of the Australian Press Council and the Australian Broadcasting Authority, is author of The Twilight of the Elites, and Malice in Media Land, published by Freedom Publishing. His latest monograph is Her Majesty at 80: Impeccable Service in an Indispensable Office, Australians for Constitutional Monarchy, Sydney, 2006

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