From Monopolies to Cartels, Coronavirus is Shifting the Balance of Power

Abinaja Yogarajah

The coronavirus pandemic has severely impacted the Australian economy and a number of key industries in strange ways. As borders close, the aviation sector is experiencing serious turmoil. On the other hand, as people continue to panic buy, the supermarket sector is struggling to meet demand. This article focuses on the competition law issues currently being faced by the airline and supermarket industries in Australia. These issues are varied in nature but both causes of concern for the Australian Competition and Consumer Commission (‘ACCC’).

While consumers may be waiting for postpandemic deals, Mr Sims notes that these rockbottom prices could ‘squash out competitors’ in the nascent stages of their emergence, which would also be considered anti-competitive.”

Virgin Flies into Voluntary Administration On 21 April 2020, Virgin Australia, Australia’s second major airline, entered into voluntary administration. A quick refresher – voluntary administration is the process by which a company appoints an independent administrator to help assess its options to resolve its financial difficulties. Interestingly, this does not always mean that the airline will go under as it is not uncommon practice in the airline industry. Airlines such as Delta, United and American Airlines have all filed for Chapter 11 bankruptcy (a concept in the US which is a debtor-led process of restructuring to handle finances). All three airlines emerged as more efficient corporations. However, as Virgin’s administrator attempts to restructure the company to help it stay afloat, Qantas is left with significant market power. This monopoly has raised numerous concerns around potential anticompetitive behaviour.

Qantas’ potential to act anti-competitively may manifest in a number of different ways. Rod Sims, the chairman of the ACCC, has expressed concern around behaviour that might seek to exclude new airlines that emerge in place of Virgin. He mentions that the ACCC will be on the lookout for potential ‘exclusive arrangements with the airports [and] fuel suppliers’. The ACCC is also wary of possible predatory pricing that could price Virgin Australia, or its replacement, out of the market. While consumers may be waiting for post-pandemic deals, Mr Sims notes that these rock-bottom prices could ‘squash out competitors’ in the nascent stages of their emergence, which would also be considered anti-competitive.

In an attempt to protect new actors in the airline market, and to keep Qantas honest, Treasurer Josh Frydenberg may grant Mr Sims increased powers. Although the current arrangements between the Treasurer and Mr Sims are confidential, this sentiment has been reiterated by Prime Minister Scott Morrison to ensure that when Virgin Australia does re-emerge, it can regain a foothold in the market.

Recently, the Competition and Consumer Act 2010 (Cth) had been revisited to allow the regulator to impose heavy sanctions against corporations if they contravene section 46 (which relates to misuse of market power). If the court does find that Qantas misused their market

power and engaged in conduct which has the purpose or effort of substantially lessening competition, then the penalties are higher of up to $10 million or 10 percent of turnover. With Qantas’ large turnover, the penalties are expected to be quite significant. It is only a matter of time until new market entrants emerge in the airline industry, and Qantas is required to respond accordingly.

Coles and Woolies Become Mates The ACCC’s COVID-19 Taskforce has been working through the pandemic to ensure that consumers are protected, and competition is still alive in different sectors. During this period, the ACCC has granted an interim authorisation to allow supermarkets to cooperate on grocery supply when working with manufacturers, suppliers, transport and logistic providers. An authorisation is given to a business when they apply to the ACCC to receive approval to carry out conduct that would otherwise give rise to a breach of the competition provisions of the Act. This is on the basis that the public benefit to meet demand outweighs such detriment. Such authorisation currently applies to Coles, Woolworths, Aldi and Metcash.

While it may not sound controversial, the cooperation between supermarket chains is contrary to the ACCC’s fight against cartels and anti-competitive agreements. Cartels form when businesses make agreements with their competitors to fix prices, rig bids, share markets or restrict outputs. This conduct is typically frowned upon by the ACCC because cooperation between competitors effectively amounts to stealing from consumers. For example, it results in price inflations, a reduction of choices and a damaged economy. Furthermore, cartel conduct can attract heavy sanctions and, in some cases, criminal penalties.

Many commentators have reservations relating to these authorisations – not that they should not be given, but rather the authorisation’s scope to grant should be limited. At the moment, the authorisation is broad and allows supermarkets to enter into arrangements for the purpose of facilitating the acquisition and/or supply of groceries, ensuring fairer access to groceries, providing greater access to disadvantaged people, and facilitating access in remote and rural areas.

Even though many of these are temporary measures made in light of the pandemic, the authorisation process raises concerns. Although there is some involvement from the government, as the authorisation applies to agreements made by the Supermarket Taskforce (which is convened by the Department of Home Affairs), it still gives a great amount of power to large supermarket chains. Commentators are interestingly pointing out that rather than the government being at the centre of regulating this process, the major supermarket chains are leading the response. This has the potential to allow private corporations the power to join forces and collaborate on concepts such as ‘fairer access’ of essential supplies.

In conclusion, the coronavirus pandemic has had an unparalleled impact on the airline and supermarket industries. While they bring about very different competition issues, it will be interesting to see how volatility will force corporations and consumers to adapt and how business will emerge on the other side.