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The inaugural event of the Regulatory Policy Insitute ANZ (RPI ANZ), “Rebuilding faith in institutions, markets and competition – what is the way forward?” will be a full house this evening, with the event reaching capacity registration.

The panel discussion will feature George Houpis, Director of Frontier Economics alongside Professor George Yarrow, former chair of the Regulatory Policy Institute in Europe, Rosemary Sinclair, CEO of Energy Consumers Australia and Peter Kell, former deputy chair at regulators the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

George will focus on issues and challenges that governments and consumers face in the area of digital platforms. The ACCC’s report into digital platforms was released in mid-2019, and raised certain areas that the Australian regulator was looking into. Many of these same issues are concerning other regulators around the world. George’s presentation will discuss whether existing frameworks are enough to regulate this sector, with particular insights from the European context.

Frontier Economics is jointly sponsoring this event with Herbert Smith Freehills.

Frontier Economics (Europe) director George Houpis is visiting Australia and will present at the inaugural seminar of the Regulatory Policy Institute ANZ on Thursday 29 November.  "Rebuilding faith in institutions, markets and competition: what is the way forward?" will look at challenges revealed in regulated markets such as financial services, energy and the digital space. Is competition in these markets working effectively to deliver beneficial outcomes to consumers?

To respond to these challenges, there have been calls for greater regulation, greater competition and more enforcement. Different types of intervention have been put forward, and other issues are also now on the policy table: fairness, culture, ethics and trust. So what next for the policy environment? What comes next for regulation, markets and consumer?

George is a founding director of Frontier Economics and specialises in the theory and application of regulation and competition policy, market research and forecasting in the telecoms, postal and other sectors.

Along with George Houpis, the panellists discussing these issues include Professor George Yarrow, former chair of the Regulatory Policy Institute in Europe, Rosemary Sinclair, CEO of Energy Consumers Australia and Peter Kell, former deputy chair of ASIC and the ACCC. The panel will be chaired by Liza Carver, Regional Head of Practice, Competition, Regulation and Trade at Herbert Smith Freehills.

To register for this event, please visit the event booking page.

Frontier Economics is jointly sponsoring this event with Herbert Smith Freehills.

For more information, contact us.

The Australian Competition and Consumer Commission (ACCC) announced today that it would provide informal clearance for ANZ Terminals to buy GrainCorp Bulk Liquid Terminals (GNCLT).  ANZ Terminals and GNCLT provide bulk liquid storage services at a number of ports in Australia.

Lawyers for the ACCC sought advice from Frontier Economics on some economic issues raised by the merger, which centred around competition in certain markets that both companies operate in. The clearance is subject to an undertaking from ANZ Terminals that it would not lease any more of the limited land remaining at the Port of Melbourne's Coode Island without the permission of the ACCC. ANZ Terminals must also divest a facility in South Australia, while GrainCorp must retain a bulk liquid facility in Port Kembla.

Frontier Economics regularly advises clients on a range of competition matters.

For more information, contact us.

This week the Productivity Commission’s (the Commission’s) inquiry into the Economic Regulation of Airports was released. As expected, the Commission has continued with the view presented in its draft report that Australia’s major capital city airports have market power but are not exercising it. This puts the Commission at odds with the expressed positions of the ACCC, Grattan Institute and numerous other well-regarded economists.

Part of the reason for these differing positions may be explained by looking at the framework the Commission has adopted in the inquiry and the difficulties the Commission found itself in because of this.

Before diving into the details it is worth considering the parable of the elephant and the blind men.

A group of blind men heard that a strange animal, called an elephant, had been brought to the town, but none of them were aware of its shape and form. Out of curiosity, they said: "We must inspect and know it by touch, of which we are capable". So, they sought it out, and when they found it they groped about it. In the case of the first person, whose hand landed on the trunk, said "This being is like a thick snake". For another one whose hand reached its ear, it seemed like a kind of fan. As for another person, whose hand was upon its leg, said, the elephant is a pillar like a tree-trunk. The blind man who placed his hand upon its side said the elephant, "is a wall". Another who felt its tail, described it as a rope. The last felt its tusk, stating the elephant is that which is hard, smooth and like a spear.

The parable of the blind men and the elephant eloquently describes the problems of partial analysis when what is required is analysis of the whole. It seems a particularly apt description of what happens with the Commission’s regular inquiries into the economic regulation of Australia’s airports.

The Commission acknowledges that Australia’s major capital city airports have market power, but its framework for assessing whether this power is being exercised seems merely to grasp at different parts of the elephant.

The Commission’s approach to the assessment of airport performance is to consider the various service offerings provided to different user groups – airlines (runways and terminals), retailers (retail space in terminals), passengers (car parking) and others requiring landside access, such as taxis, buses and car rental operators. Analysing each element separately misses the important links between them, and as the blind men would attest, it is far harder to assess each element of the elephant than the elephant as whole. We should not be surprised that analyses that focus on whether market power has been exercised in one of a number of related services runs the Commission into one dead end after another. Only the most egregious of exercises of market power could be detected under the Commission’s framework.

Consider the consumers’ bugbear – the price of airport parking. The Commission twists and turns to justify the charges. It compares prices at the airport with other high value locations like CBDs and sports stadiums that are nothing like an airport. It also suggests that prices are high to reflect the “opportunity costs” of the land – the possibility that, if prices are not high enough, the land could be turned to alternative uses. But might these also be uses from which the airport can extract the benefits from downstream market power? The Commission also identifies no evidence of under-investment in car parking – which it fears could raise charges by “intentionally restricting the supply of car parking to obtain scarcity rents...” But why an airport would bother under-investing to generate scarcity rents when it could just set the monopoly price directly?

Similar problems emerge when considering other landside service charges – is $4.50 per taxi too high? What about concession charges for car rental operators, which contribute $92 to the average car rental at Sydney? Unlike car parking, here the Commission rejects evidence that compares charges at airport with non-airport locations. Now the comparisons are not “apples with apples”.

When it comes to airlines, the Commission is resolute in its views that airlines exercise countervailing power to keep aeronautical charges down. Although airlines have demonstrated that reducing services invariably harms an airline more than an airport (because they make more per passenger on each flight than does an airport), the Commission now concludes that by simply not agreeing with airports on charges, they may exercise countervailing power. Quite how leaving airport users with no recourse meets the main objective of the light-handed regime – facilitating commercial negotiations – is unexplained.

Ultimately, what is lacking here is a total view of the elephant.

In our view, a better approach would have been to recognise the inter-relationships between the services that the airports offer, and assess the airports returns across all of their aeronautical-related activities. It would provide a much simpler benchmark for performance. However, it is an approach that the Commission rejects, because it would not show whether profits could be attributed to the exercise of market power in aeronautical services specifically. Is it a snake, a wall, or a fan?

The Federal Government is now considering the Commission’s report before it decides on the appropriate form and function of airport economic regulation. One hopes they will be able to see beyond the blind men’s assessment of the elephant.

Frontier Economics advises a range of airport users, including A4ANZ, Qantas and AFIA.

For more information, contact us.

Frontier Economics chairman Lord Gus O'Donnell and former Australian Minister for Trade and Investment Andrew Robb AO presented to a full house at the 'Brexit & Australia" event in Singapore held on 25 September. The audience was treated to the unique perspectives in government and international trade offered by both presenters, with the occasional controversial statement thrown in!

The Frontier Economics chairman spoke about how Brexit came to pass and the decisions made by the British Government along the way, stretching over three years and three Prime Ministers . He also spoke about the challenges faced by the current government in trying to negotiate a deal that would result in the UK leaving the EU in a more orderly fashion than crashing out with no deal Such a deal would mark the end of the beginning of the negotiations required between the UK and the EU. The next stage is to sort out the details of the UK’s trading relationship with the EU, to replace the deals the EU has with other countries and to negotiate trade deals with countries like Australia, Canada, New Zealand and the USA. Andrew Robb drew parallels between Australia’s program of microeconomic reforms in the 70s and 80s to show that while that transition was difficult, it was followed by substantial economic growth as the country became more liberalised and trade opened up. The parallel drawn with Brexit is that it may have long term beneficial effects on trade, particularly with countries outside of the EU (e.g., Australia).

The event was co-presented by the Australian Chamber of Commerce, Singapore, and the British Chamber of Commerce, Singapore, with the discussion moderated by Juliette Saly from Bloomberg Radio & Television.

Frontier Economics was delighted to sponsor this event as part of our 20th anniversary celebrations.

For more information, contact us.

We are aware of some recent social media posts referencing our work on the Productivity Commission’s inquiry into Airport Regulation.

These posts reference the Commission’s critique in its draft report of our analysis which assessed the costs and benefits of reforming the regulatory regime applying to monitored airports.  The Commission alleged that our work contained fundamental errors and was not credible. We disagree, and have provided a response to the Commission setting out why.

In short, our analysis was directed as estimating the potential impact of excessive airport charges on air travel and Australia's connectivity with the rest of the world. We found that these effects were potentially quite significant, as airports had earned excess returns over a long period and returning some of that to airlines and airline passengers could substantially improve route connectivity.

This​ analysis should have encouraged further analysis and assessment. ​ However, unfortunately it did not.​ Instead the Commission dismissed Frontier’s analysis based on disagreements with our finding of excess profits, and the impact of reducing this on airport charges.

Rather than identifying “fundamental errors”, the Commission has simply taken a different view without any consideration of the underlying framework we put forward. Our analysis of excess profits is based on an economically-sound methodology that draws data from ACCC monitoring reports and takes into account returns earned on both the aeronautical and non-aeronautical side of the business – the most common regulatory method used in other jurisdictions. The Commission in turn made a number of errors in characterising our approach to turning excess profits into a reduction in the aeronautical charges paid by airlines. Most notably, it confused a return passenger with a one way passenger which resulted in assumptions which in no way reflect those underpinning our work. We have sent the Commission further details to correct its misunderstandings.

More generally, Frontier Economics indicated its disappointment with the way the Commission contextualised our evidence and engaged with it.​  We were the only party to present a more detailed assessment of the impacts of changing the regulatory regime applying to monitored airports. Every other party including the airports and the Commission itself skirted this issue. Why? Probably because it is hard and requires certain assumptions to be made. Assumptions necessarily introduce uncertainty, but this does not of itself discredit our analysis. We were transparent about our assumptions and considered carefully how best to used this connectivity analysis in our wider assessment. ​

For those that are interested to understand these issues, we suggest you read our March 2019 submission to the Commission’s draft report.

For more information, please contact us.

The Water Services Association of Australia (WSAA) has released the paper “Blue + Green = Liveability: the value of water to liveable communities”.

This paper advocates for the consideration of water-related infrastructure in creating liveable cities. Last year, in a project for WSAA which looked at Health Benefits from Water-Centric Liveable Communities, Frontier Economics created a ready reckoner modelling tool which identifies and quantifies (where possible) the relationships between the water industry investment and improved health-related economic outcomes. This has the significant benefit of enabling a consistent and rigorous means of assessing infrastructure projects, which in turn leads to the right projects being approved. This work is featured as a case study in the paper.

Blue + Green = Liveability also features a case study of our work with Infrastructure NSW on the Western Parkland City (Sydney’s Third City), much of which lies within the South Creek Catchment. We undertook a strategic business case which found that adopting integrated land use and water cycle management strategies in the WPC would deliver significant economic, social and environmental benefits to the community in the form of reduced water infrastructure, more open space, greater urban cooling and more healthy waterways and riparian environments.

Blue + Green = Liveability sets out a series of recommendations for government, the urban water industry and other collaborating partners, with a key recommendation being the establishment of a new National Water Initiative focused on liveability of cities and regions across the urban water cycle.

Frontier Economics assisted WSAA with research and consultation in the development of this paper. The Urban Economics team at Frontier Economics has been advising clients on a range of projects at policy and implementation level addressing challenges particular to our urban environment.

For more information, please contact us.

The Australian Chamber of Commerce and British Chamber of Commerce in Singapore are presenting a joint event, "Brexit & Australia" on Wednesday 25 September 2019.  Frontier Economics is co-organising this event as part of our 20th anniversary celebrations. Brexit & Australia will discuss what is happening in the lead up to and following October 31st when Brexit is due to take place. Prime Minister Boris Johnson promised that the UK will leave the EU regardless, however, there is still considerable uncertainty about the process and what it form it will take. Further ahead, what does Brexit look like for Asia and Australia?

Join our key speakers, Lord Gus O'Donnell, former British senior civil servant & economist, now Chairman of Frontier Economics (Europe) and Andrew Robb AO, former Minister for Trade and Investment in Australia (2013-2016) as they share more on relations between the UK, Australia and the rest of the world.

We would like to thank AustCham and BritCham for co-organising this event. To register, please visit the event page.

In 2019, Frontier Economics is celebrating 20 years of economics.

For more information, please contact us.

The Australian Competition and Consumer Commission (ACCC) has released its decision to not oppose the acquisition of Ruralco by Nutrien. The decision is subject to an undertaking requiring Nutrien to divest three rural merchandise stores in Broome (WA), Alice Springs (NT) and Hughenden (Qld), to an approved third party.

Nutrien owns Landmark and sought to acquire Ruralco. Both Landmark and Ruralco had a strong presence in rural merchandise retail and wholesale operations supplying both own stores and independent stores. The ACCC issued a Statement of Issues expressing some concerns with the proposed acquisition, as it would combine two of three major retail chains in the rural merchandise market. Frontier Economics was retained by lawyers for Nutrien to provide economic advice. We provided empirical analysis of competition in relevant markets. The ACCC decided that the merger was not likely to substantially lessen competition, as rival retailers and wholesalers will continue to provide competition.

Frontier Economics regularly advises clients on a range of competition matters.

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The Australian Competition and Consumer Commission (ACCC) today published its final report on its inquiry into digital platforms with a particular focus on the impact of the platforms on media and advertising.

The ACCC’s inquiry has extended beyond competition issues, as it addresses concerns regarding privacy and the provision of certain kinds of content which promote the public interest (particularly news journalism). The ACCC does, however, identify certain competition concerns in markets where digital platforms and traditional media compete, particularly that current regulations do not facilitate “competition on the merits”.

The report includes 23 far-reaching recommendations, although it has avoided recommendations that seek structural reforms of digital platforms. The report includes a recommendation to set-up a dedicated tech regulator, which would provide ongoing monitoring of whether digital platforms are engaging in any anti-competitive conduct and would have the power to enforce any necessary remedial actions.

A recommendation relating to merger law is likely to prove particularly contentious. The ACCC proposes that Section 50(3) of the Competition and Consumer Act 2010 (CCA) be amended to incorporate the following additional merger factors to the non-exhaustive list:

(j) the likelihood that the acquisition would result in the removal from the market of a potential competitor;

(k) the nature and significance of assets, including data and technology, being acquired directly or through the body corporate.

Frontier Economics does not support this recommendation. We consider that Australia’s merger law is deliberately drafted broadly and is capable of addressing issues relating to digital platforms. Past mergers have often included the impact of removal of potential competitors (for example, this was a key consideration in mergers between the Australian Stock Exchange and Sydney Futures Exchange, and between Foxtel and Austar). Considerations relating to barriers to entry created by control of data and technology are very similar to other kinds of barriers to entry. In our view, adding further to lists of extensive lists of non-exhaustive factors is unlikely to assist the courts in making better decisions regarding mergers or acquisitions by digital platforms.

The ACCC has also flagged that it may lobby government for amendments to merger laws to make it more difficult for mergers or acquisitions in certain circumstances, reflecting its dissatisfaction with the resolution of past cases. Frontier Economics does share some of the ACCC’s concerns regarding the treatment of evidence from parties to transactions (see our bulletin Is that a fact?) and the acceptance of behavioural undertakings.

Frontier Economics regularly advises clients in the media and communications sector on a range of matters, including competition. We advised a client in regard to the digital platforms inquiry.

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