Beersheba and philanthropy

According to the agreed facts, the executives of Visy and Amcor had reached an understanding about prices and market shares. As Visy chairman, Richard Pratt had one meeting - one meeting - with the head of Amcor where he said he would adhere to the understandings reached between the executives.

In this Visy has consistently said that it entered into the understanding to take advantage of Amcor. This is not of course a legal defence, but it is not improbable. Indeed it is more than likely.

The cardboard container market is highly concentrated, in fact so much so an agreement to fix prices is hardly necessary. In such markets, prices are determined by the players watching one another. One of the players is often accorded the status of price leader. When it changes its prices, the others follow, sometimes observing a decent margin from the price leader.

Such "conscious parallelism" is a very well known phenomenon in concentrated markets. To customers in a concentrated market the effect is the same as price fixing.

A good example, ironically close to newspaper critics, is the weekday broadsheet newspaper market in Sydney. The price of the Sydney Morning Herald and for The Australian is exactly the same - $1.30. I would be surprised if Fairfax and News Limited have agreed on this price, even by a nudge or a wink. The point is, they don't have to. The journals in which some righteous commentators have talked about Visy are a living example of conscious parallelism. This is price fixing by more than just osmosis, but just outside the law.

Now in a market where there are many participants a price fixing agreement can be very effective. It can significantly change the price, which doesn't usually happen in a concentrated market.

The best example is in labour markets, provided of course there is no labour shortage. One of the great struggles in the nineteenth century was to legalise price fixing by workers through unions.

I doubt whether anybody would seriously argue against collective bargaining by workers. The only argument has been whether and to what extent they could opt out of the state supervised system of conciliation and arbitration.

A lot has been written about the cost to the consumer of the Visy-Amcor understanding. It is doubtful whether the prices would have been much different had the agreement not been entered into.

But although in concentrated markets it is likely to be a breach of the law without a victim, the law still comes down hard on price fixing. 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. Ironically, we have just mitigated that anomaly in defamation law, where vast damages used to be awarded without proof of economic loss.

Some zealots even say it should be a criminal offence. It is hard to see the public benefit, except in those imperfect markets which are not concentrated. Even then, there is often a very good reason to exempt them, for example, to allow collective bargaining by workers.

Now the decision of Amcor's new management to go to the ACCC was undoubtedly greeted with some delight by that body. The ACCC would have seen Visy and Richard Pratt as wonderful trophies, perhaps a vindication of their work in making the Australian economy more competitive.