How does the ACCC assess vertical mergers?

By Linda Evans.

Key Points:
Most of the document focuses on the ability and incentive for one of the consortium members to influence the decisions of the management of Sydney Airport about how and on what terms services were supplied to airlines.

When the ACCC announced its decision not to oppose the proposed acquisition of Qantas by the Airline Partners Australia consortium, it released a Public Competition Assessment ("PCA") setting out its reasons for the decision. The PCA contains a detailed consideration of the areas of potential concern and provides a valuable insight into the way in which the ACCC assesses vertical mergers.

Most of the document focuses on the ability and incentive for one of the consortium members, Macquarie Bank Limited ("MBL"), to influence the decisions of the management of Sydney Airport about how and on what terms services were supplied to airlines. The concern was that Sydney Airport could be influenced to act to give Qantas a competitive advantage over its rivals.

Three things of particular interest are:

• the extent to which the ACCC used quantitative economic analysis in examining the likelihood of discrimination in favour of Qantas. The ACCC concluded that in order for it to be profitable for Sydney Airport to discriminate in favour of Qantas, the discrimination would have to result in twice as much financial gain to Qantas as the financial detriment Sydney Airport was suffer. There was no evidence of anything approaching that order of magnitude;
• the precise way in which the ACCC properly confined itself to a consideration of the potential impact of the transaction. The question the ACCC asked therefore was, "Would the transaction either create incentives to preference Qantas or would it make any pre-existing incentives more likely to occur?" The ACCC was at pains to point out that it was not involved in a general assessment of Sydney Airport's behaviour; and
• the fact that the ACCC concluded that MBL had a greater level of influence over Sydney Airport than its shareholding would suggest, given other Macquarie-related interests arising from the management interests of Macquarie Airport Management Limited.