Cabcharge - Concerns About Cabcharge Activities - Fine For Misuse of Market Power and Predatory Pricing - Background

Background

Cabcharge provides payment systems for taxi operators and drivers to manage non-cash taxi fares. The company holds a dominant market position in these services across Australia as it supplies almost 97 per cent of Australian taxis with its electronic payment system. The ACCC began proceedings in June 2009 in the Federal Court of Australia against Cabcharge. The ACCC action alleged that Cabcharge had breached the Trade Practices Act (TPA) by misusing its market power and entering into an agreement to substantially lessen competition. The action centered on Cabcharge's conduct in refusing to deal with competing suppliers to allow Cabcharge payments to be processed through EFTPOS terminals provided by rival companies and supplying taxi meters and fare updates at below actual cost or at no cost.

To breach the TPA, a corporation must have misused its substantial market power to:

• eliminate or substantially damage a competitor
• prevent the entry of a person into that market or any other market; or
• deter or prevent a person from engaging in competitive conduct in that market or any other market.

The relevant section of the TPA was amended numerous times since September 2007 to strengthen the ACCC's ability to successfully bring proceedings for alleged contraventions. For example, in September 2007, the TPA was changed to prohibit corporations with substantial market share from engaging in predatory pricing. Predatory pricing occurs when a company sets its prices below cost for a sustained period for one of the anti-competitive purposes referred to above. In November 2008, the TPA was changed again to make clear the circumstances when corporations had 'taken advantage' of their market power. This change sought to deal with the evidentiary difficulties the regulator encountered in establishing this element in earlier cases. Since January 2007, the courts have also been given power to impose a civil penalty for each act or omission contravening the TPA. Civil penalties can now be imposed were up to the greater of $10 million, three times the value of the benefit obtained from the misconduct, or 10 per cent of the annual Australian turnover of the company involved.