LEGAL PRINCIPLES
27 The Full Court remitted the matter back to the Tribunal for failing to take into account a relevant consideration. The Full Court did not find that the Tribunal had applied the wrong law, nor did its judgment change the applicable law, although it clarified the appropriate methodology for the application of s 95AZH(1) when the Tribunal considers whether to grant authorisation under s 95AT(1).
28 The relevant legal principles were stated in Application by Tabcorp Holdings Limited [2017] ACompT 1:
[39] The legal test by which the Tribunal makes its determination is not the test in s 50. Under s 95AZH, the Tribunal must not grant authorisation unless it is satisfied in all the circumstances that the proposed acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to occur.
…
[58] Section 50 prohibits a corporation from acquiring shares or assets if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. However, the Tribunal may grant authorisation to a person to acquire shares in the capital of a body corporate or acquire the assets of another person: s 95AT(1). The Tribunal may grant authorisation subject to specified conditions, including a condition that a person must make and comply with an undertaking to the ACCC under s 87B: s 95AZJ(1) and (2). If Tribunal authorisation is granted the prohibition in s 50 does not apply, provided the authorised acquisition is carried out in accordance with the conditions of its grant: s 95AT(2) and (3).
Test to be applied: s 95AZH
[59] The Tribunal must not grant an authorisation unless satisfied that, in all of the circumstances, the proposed acquisition would result, or be likely to result, in "such a benefit to the public that the acquisition should be allowed to occur": s 95AZH(1).
[60] Section 95AZH(2) specifies certain matters to which the Tribunal must have regard in determining what amounts to a public benefit. If as a consequence of the proposed merger there is likely to be a significant increase in the real value of exports, or a significant substitution of domestic products for imported goods, the Tribunal must regard these as a public benefit: s 95AZH(2)(a). The Tribunal must also take into account, in determining what amounts to a benefit to the public, all other relevant matters that relate to the international competitiveness of any Australian industry: s 95AZH(2)(b).
[61] However, the Tribunal is not confined to these matters when considering whether such a public benefit has arisen that the transaction should be allowed. The expression "benefit to the public" has been interpreted broadly by the Tribunal since Re Queensland Co-operative Milling Association Ltd; re Defiance Holdings Ltd (1976) 8 ALR 481 ('Re QCMA') where the Tribunal said (at 510) that public benefit included:
anything of value to the community generally, any contribution to the aims pursued by the society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress.
A public benefit arises "if the benefit would not exist without the acquisition or if the acquisition removes or mitigates a public detriment which would otherwise exist": Application by Sea Swift Pty Ltd [2016] ACompT 9 at [42] ('Sea Swift').
[62] The Tribunal has previously adopted a modified total welfare standard when identifying and assessing public benefit: see Qantas Airways Limited [2004] ACompT 9 at [185] ('Qantas'). This means that the Tribunal has considered that gains flowing to only a limited number of members of the community may constitute a benefit to the public, but those gains will carry less weight than gains which flow to the community generally.
[63] In Qantas, the Tribunal considered whether 'public benefits' include the gains made by a domestic company's foreign shareholders. Endorsing Re Howard Smith Industries Pty Ltd (1977) 28 FLR 385, the Tribunal emphasised that:
it is benefits to the Australian public, not to the overseas public, to which the Tribunal should have regard. However, the Tribunal noted the practical difficulties involved in limiting one's consideration to benefits to the Australian public.
[64] The Tribunal in that instance concluded that supra-competitive returns and deadweight loss that accrues to foreign shareholders should be disregarded. However, returns to foreign shareholders of Australian companies would constitute a public benefit where they are re-invested in the Australian economy or result in further foreign investment in Australia: Qantas at [199].
[65] The method by which the Tribunal assesses the existence and weight of a public benefit was described in Sea Swift at [42]:
A public benefit arises from a proposed acquisition if the benefit would not exist without the acquisition or if the acquisition removes or mitigates a public detriment which would otherwise exist. If a claimed public benefit exists, in part, in a future without the proposal, the weight accorded to the benefit may be reduced appropriately. Public benefit is a wide concept and may include anything of value to the community generally so long as there is a causal link between the proposed acquisition and the benefit: see Application by Medicines Australia Inc (2007) ATPR 42-164; [2007] ACompT 4 ("Medicines Australia") at [107], [118]-[119]. Benefits not widely shared may nevertheless be benefits to the public: Hospital Benefit Fund of Western Australia Inc v Australian Competition and Consumer Commission (1997) 76 FCR 369 at 375-377. However, the extent to which the benefits extend to ultimate consumers is a matter to be put in the scales: [Re AGL] at [168].
[66] Although s 95AZH does not explicitly refer to public detriment, assessment of public benefit does not occur in a vacuum. The Tribunal must have regard to "all the circumstances" in applying the authorisation test prescribed by the CCA. In Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225 ('Re QIW'), the Tribunal said at 234:
The examination of "all the circumstances" must in our view involve the tribunal in an examination of matters of detriment, including anti-competitive detriment, in order to conclude whether in all the circumstances there is such a degree of benefit to the public that the acquisition should be allowed to proceed …
[67] Public detriments can include, but are not limited to, the reduction of competition resulting from an acquisition: Re QCMA at 512. They may include detriments other than those that relate to anti-competitive effects: Sea Swift at [43]. Much like public benefits, public detriments are broadly framed to include "any impairment to the community generally", including "any harm or damage to the aims pursued by society including as one of its principal elements the achievement of the goal of economic efficiency": Qantas at [150], quoting Re 7-Eleven Stores Pty Ltd, Australian Association of Convenience Stores Incorporated and Queensland Newsagents Federation (1994) ATPR 41-357 at 42,683.
Market definition
[68] The consideration of public benefits and detriments arising from a merger necessarily includes the competitive effects of the transaction. This includes consideration of the effects of the merger on the international competitiveness of Australian industry under s 95AZH(2). It also includes any other pro-competitive or anti-competitive effects in a market. The Act includes two definitions of a market: s 4E states that 'market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services'. Section 50(6) is directly applicable to the prohibition in s 50(1) of acquisitions that would substantially lessen competition; it adds that 'market means a market for goods or services in Australia, or a State, or a Territory, or a region of Australia'. Certainly, s 50(6) does not exclude the concept of substitutability, a concept to which the Tribunal will return.
[69] To assess competitive effects in a market, the market would normally need to be defined, or at least considered.
[70] In considering the competitive effects of any transaction, there is an emphasis on substitutability (amongst other factors) and the commercial context and the commercial realities relevant to the market and competition. Market identification is an economic tool or instrumental concept to analyse competitive behaviour. Any analysis will necessarily involve value judgements, as such analysis concerns human behaviour and commercial norms of behaviour.
[71] The Tribunal observes that the High Court of Australia has recently confirmed the principles relevant to market definition and any analysis of competitive behaviour in Air New Zealand Ltd v Australian Competition and Consumer Commission [2017] HCA 21 ('Air New Zealand'). At [12]-[14], Kiefel CJ and Bell and Keane JJ stated:
[12] The authorities confirm that a market, within the meaning of the TPA, is a notional facility which accommodates rivalrous behaviour involving sellers and buyers. In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, Deane J, after noting that "[s]ection 4E confines 'market' for the purposes of the Act to 'a market in Australia'", went on to say that "'market' should, in the context of the Act, be understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes". Dawson J agreed generally with Deane J, adding:
"A market is an area in which the exchange of goods or services between buyer and seller is negotiated. It is sometimes referred to as the sphere within which price is determined and that serves to focus attention upon the way in which the market facilitates exchange by employing price as the mechanism to reconcile competing demands for resources".
[13] Similarly, in Boral Besser Masonry Ltd v Australian Competition and Consumer Commission, McHugh J observed:
"[T]he market is the area of actual and potential, and not purely theoretical, interaction between producers and consumers where given the right incentive … substitution will occur. That is to say, either producers will produce another similar product or consumers will purchase an alternative but similar product."
[14] Section 4E of the TPA proceeds upon the express footing that, notwithstanding the abstract nature of the concept of a market, it is possible to locate the market where the competition protected by the TPA occurs in Australia. Reconciling the abstract notion of a market with the concrete notion of location, so that they work coherently, presents something of a challenge. Particularly is this so because "competition" describes a process rather than a situation. But given that the TPA regulates the conduct of commerce, it is tolerably clear that the task of attributing to the abstract concept of a market a geographical location in Australia is to be approached as a practical matter of business. It is important that any analysis of the competitive processes involved in the supply of a service is not divorced from the commercial context of the conduct in question.
(Emphasis added).
[72] At [39], Nettle J (whilst agreeing with Gordon J) stated as an additional comment:
[39] As the majority in the Full Court of the Federal Court (Dowsett and Edelman JJ) recognised, market definition is a question of fact. More precisely, it involves "a fact-intensive exercise centered on the commercial realities of the market and competition". And, as a consequence, the definition of a market is liable to vary according to the purposes of the exercise undertaken.
(Emphasis added).
[73] At [57]-[65], Gordon J stated:
[57] Market identification is not a task undertaken at large, or in a vacuum. The task, and the extent of the task, are tailored to the conduct at issue and the statutory terms governing the contravention. The need to identify the market arises only in the context of determining whether the conduct constitutes a particular contravention of the TPA. That is, the question of whether there is a market "in Australia" is to be asked and answered in the statutory context in which that question arises. It is not to be asked or answered in isolation from that context or by looking only at what appears in s 4E of the TPA.
[58] The first step is to identify "precisely what it is that is said to have been done in contravention of the section". As has been rightly said in the Federal Court of Australia, the court begins with the problem at hand and asks "what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes". Identifying a market is a "focusing process" which is "to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis" … .
[59] That approach recognises that the concept of a "market" is "not susceptible of precise comprehensive definition". It recognises that market identification is an economic tool, or instrumental concept, that uses and integrates those legal and economic concepts best adapted to analyse the asserted anti-competitive conduct. It recognises that market identification is "not an exact physical exercise to identify a physical feature of the world" and that there is often little or no utility in debating or identifying "the precise physical metes and bounds of a market". It recognises that market identification is "not a physical thing, or essence, which can be identified in a manner divorced from the relevant context". And it recognises that market identification depends upon the issues for determination - the impugned conduct and the statutory provision proscribing anti-competitive behaviour that the conduct is said to contravene.
[60] That is not to say that a market can be identified arbitrarily. It must be based on findings of fact. "The premise of that proposition", as the Full Court of the Federal Court said in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd, is that the identified market "has economic and commercial reality":
"It must accordingly not be artificial or contrived. Economists frequently construct economic models to analyse complex commercial or economic events or scenarios. But a model is unlikely to be a useful analytical tool if based on unrealistic assumptions that materially depart from the real world facts and circumstances involving commercial behaviour in which the events to be analysed occur."
[61] The identification of the market must therefore "accurately [and] realistically describe and reflect the interactions between, and perceptions and actions of, the relevant actors or participants in the alleged market, that is, the commercial community involved".
[62] Embedded in the "focusing process" is the recognition that the substantive criteria for a particular contravention in issue will depend on the particular statutory provisions. That process "may lead to the drawing of different lines in different circumstances depending upon the purpose of the provision in question". In turn, that process may "lead to different market definitions in relation to the same industry" or even different markets within the same case. That potential was recognised more than 25 years ago by Professor Brunt, who wrote that "[t]here can be more than one 'relevant market' for a particular case, in the sense of markets that will attract liability". There is nothing odd about that conclusion. As Professor Brunt pointed out, it reflects the fact that market identification "is but a tool to facilitate a proper orientation for the analysis of market power and competitive processes - and should be taken only a sufficient distance to achieve the legal decision".
[63] Recognising that market identification is an economic tool has other important consequences. Economics is a social science and "does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions".
[64] The nature of economics as a social science is often highlighted by the existence of conflicting expert opinions about the identification of a relevant market. Deane J acknowledged as much in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, when his Honour said:
"The economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted. One overall market may overlap other markets and contain more narrowly defined markets which may, in their turn, overlap, the one with one or more others."
[65] When a court is required to draw its own conclusions about market identification, it is therefore inherent in that task - being one founded on economics as a social science - that the court will be required to make "value judgments about which there is some room for legitimate differences of opinion". As a result, "[m]arket identification and definition is not an exact science. It is rooted in the analysis of commerce as an aspect of human behaviour".
(Emphasis added).
[74] However, in this proceeding, there has been no real contest as to market definition although the Tribunal will make some observations specifically relating to various areas of debate in this regard. As indicated, market definition is only a tool for analysing the extent of competitive constraints that apply to the participants engaging in the market.
[75] The Tribunal appreciates that care must be taken in the consideration of substitutability in any discussion of the concept of a market. Substitutability has never, as a matter of legal principle, been the sole criterion to consider in any debate in defining a market. As the plurality said in Air New Zealand at [24]-[26]:
[24] In QCMA the Trade Practices Tribunal explained that a market is "the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution … if given a sufficient price incentive". Later, in discussing the distinction between markets and sub-markets, it was said that:
"Where the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a sub-market is the existence of still closer and more immediate substitutes."
[25] The Tribunal did not say that substitutability will be the defining feature of a market in every case. The passage takes as its premise that it is the defining feature for the question at hand.
[26] This is not to suggest that substitutability may not be an important, or even a decisive, factor in market definition in some cases, just as barriers to entry may be. It is rather that concepts such as market and cross-elasticity of supply and demand provide no complete solution to the definition of a market, as Dawson J observed in Queensland Wire Industries. Much will depend upon the context in which the question arises. The exercise of market definition needs to take into account the conduct in question and its effects, and the statutory terms governing the question.
(Emphasis added).
[76] Gordon J (with Nettle J agreeing) made the following comments as to substitutability at [85]-[89]:
[85] As s 4E of the TPA relevantly provided, a market in relation to services includes a market for those services as well as other services that are substitutable for, or "otherwise competitive with", those first mentioned services.
[86] In QCMA, the Tribunal said that "[w]here the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a sub-market is the existence of still closer and more immediate substitutes" (emphasis added). In Queensland Wire, Mason CJ and Wilson J referred to that oft cited passage in QCMA as explaining that "the defining feature of a market is substitution".
[87] There are a number of points to be made about that statement in Queensland Wire. First, as the Tribunal itself recognised in QCMA, the existence of close substitutes is not the defining feature of every market. Second, as Dawson J pointed out in Queensland Wire, "[i]mportant as they are, elasticities and the notion of substitution provide no complete solution to the definition of a market". Focusing too closely on the concept of substitutability can obscure the proper identification of the market and undermine the purpose of the relevant statutory provisions.
[88] As noted earlier, s 45 is concerned to promote competition. Relevantly, it is concerned to proscribe contracts, arrangements or understandings that contain a provision which has the purpose, effect or likely effect of "substantially lessening competition" by, for example, controlling the price for services supplied by a party to that contract, arrangement or understanding. And the competition that is to be promoted is competition in any market in which a corporation that is a party to the contract, arrangement or understanding supplies those services. In that context, questions of substitutability may be relevant but are unlikely to be determinative in the process of market identification.
[89] The proposition that questions of substitutability are not determinative is not limited to s 45. In the context of s 50 of the TPA, a substantial lessening of competition is assessed by reference to a range of matters. The extent to which substitutes are available is just one of those matters. Other matters relevant to an assessment for the purposes of s 50 include the height of barriers to entry to the market, the degree of countervailing power in the market and dynamic characteristics of the market such as growth, innovation and product differentiation.
(Emphasis added).
[77] The Tribunal, to the extent that it has needed to consider the concept of a market, has been mindful not to limit itself to questions of substitutability, although this is an important consideration which in economic terms encapsulates, for instance, barriers to entry to the market and product differentiation. It will be apparent from these Reasons that the Tribunal has emphasised substitutability, but necessarily takes other factors into account as specifically identified.
[78] The Tribunal observes that market definition in Australian law can involve the application of the hypothetical monopolist test to measure substitutability. Put simply, if a small but significant non-transitory increase in price ('SSNIP') in one set of products leads consumers to substitute another set of products, then the market could be defined to include both sets of products. Dimensions of substitutability may include product characteristics, geographical limits, the functional level of the transaction, and the temporal aspect.
[79] The hypothetical monopolist test can, in some instances, be an over-simplification of complex market practices. First, it asks for consideration of consumer responses in aggregate, whereas different consumer sub-markets (or niches) can show very different responses to a SSNIP. Secondly, price takes on differing levels of significance in different markets. For instance, to raise the price even slightly would be to destroy the business model of products which have traditionally been offered for free, such as social media platforms or online search engines. The experts that the Tribunal heard from agreed that competition in wagering services takes place in both price and non-price terms. However, price usually remains the most objective lever to manipulate when considering substitutability.
[80] The ACCC's position was that "[s]eparate relevant markets appear to exist" for wagering, gaming, lotteries and Keno. Therefore, any analysis of the proposed merger's competitive effects needed to be performed separately for each of these product types. There was, perhaps, some indication of the substitutability of these different gambling products contained in the small amount of material tendered before the Tribunal with respect to problem gambling in Australia. The ACCC noted in its s 95AZEA report to the Tribunal that at least some consumers (problem gamblers) switch between different types of gambling product, rather than only participating in one. However, without further agitation of the issue, the Tribunal proceeds on the agreed basis that these product types are to be treated as separate markets.
[81] The Tribunal pauses here to mention the issue of problem gambling. The ACCC cited the Productivity Commission's Inquiry Report into Gambling (2010), which estimated that the social cost of problem gambling was at least $4.7 billion a year. The Productivity Commission noted definitional difficulties with respect to 'problem gamblers', but concluded that the concept relates to people experiencing a cluster of significant harms. Those harms include health problems, financial distress, difficulties controlling gambling and psychological impacts.
[82] Wagering, EGM machines, lotteries and Keno are services lawfully provided under regulatory regimes. The merger does not of itself constitute an attempt to target problem gamblers with services that may be harmful if not used in a controlled manner. However, Tatts has the largest database of customers who engage in some sort of gambling through its user accounts. [XXXXX XX XXX XX XXX XXXX XXXX XXX XXXX XXXX XXXXX XX XXXXX XX XXX XX XXX XXXX XXXX XXX XXXX XXXX XXXXX XX XXXXX XX XXX XX XXX XXXX XXXX XXX XXXX XXXX XXXXX X] Several witnesses raised the possibility that the Merged Entity would have an increased ability to engage in customer profiling, targeted digital marketing and cross-selling of gambling products to customers on this database. These witnesses included Mr Tyshing of CrownBet, Mr Twaits (formerly of Racing Victoria and Betfair), and the ACCC's economic expert, Mr Mellsop. The ACCC raised the possibility that increased profiling and promotional efforts would inevitably be received by vulnerable problem gamblers. Mr Joy of the Australian Lottery and Newsagents Association also raised concerns that the merger may lead to the increased availability of lotteries services to children and problem gamblers, and would certainly increase the prevalence of impulse purchases of lottery tickets.
[83] As a competition regulator, the ACCC may not be best-placed to assess the implications with respect to problem gambling of the Merged Entity having access to a more extensive customer database. Tabcorp's economic expert, Dr Simes, addressed the issue most directly. Consistent with the need to balance benefits and detriments under the net public benefits test, Dr Simes concluded that increased consumer welfare outweighed the corresponding detriment from problem gambling, with Mr Mellsop agreeing.
[84] The net public benefits test must also compare the future with the merger and the future without the merger. According to Mr Cooke, Chief Executive Officer and Managing Director of Tatts, the database of approximately two million user accounts is largely made up of lotteries consumers. Mr Cooke also stated that Tatts had already tried to leverage that database to increase turnover in Tatts' wagering operations. Whether or not that leveraging had been successful, it was occurring before merger authorisation was sought, and (if it brings commercial results) is likely to continue regardless of whether the merger occurs. There may be questions of efficiencies arising when the databases of Tabcorp and Tatts are merged, but the Tribunal saw no evidence that the intensity of profiling and promotional activity would increase because of the combination of those two databases, or that a larger database would cause problem gambling in the community. The Tribunal notes the broader concerns surrounding problem gambling, but also again notes that the merger does not target vulnerable members of the community, nor does it alleviate any service providers of their obligations under responsible gambling regulations.
Future 'with and without'
[85] In applying the net public benefits test, the Tribunal has previously considered it useful to compare the likely future 'with' the proposed acquisition to the likely future 'without' the proposed acquisition. Citing Re QIW, this was described by the Tribunal in Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Limited [2014] ACompT 1 ('AGL') at [169]:
This test is not a "before and after" test but one in which the Tribunal is to appraise the future in which the acquisition does take place "in light of the alternative outcome, were the acquisition not to take place" …
[86] Conclusions as to the 'future without' (or 'counterfactual') necessarily require the assessment of several hypotheticals. The correct approach to the counterfactual is to determine, on the balance of probabilities, the most likely of those hypotheticals: Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 ('Metcash') at [225] (Yates J, Finn J agreeing).
Degree of satisfaction required
[87] As indicated already, the Act requires that the Tribunal not grant authorisation unless satisfied that the proposed acquisition would be likely to result in such a benefit to the public that it should be allowed to occur. Because it is expressed in the negative, in order to grant authorisation the Tribunal must be satisfied of an outcome that is, in all the circumstances, preferable to the outcome under the counterfactual.
[88] The Tribunal's assessment must be based in the real world and not rest on speculation or theory alone: see Sea Swift at [47], citing Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 ('Australian Gas Light Company'). It is the balance of public benefit and detriment with the merger, compared to the balance of public benefit and detriment under the counterfactual, which leads to the Tribunal's conclusions.
[89] The Tribunal must be satisfied that "there is a real chance, and not a mere possibility" of the benefit or detriment eventuating: Qantas at [154]-[156], citing Australian Gas Light Company; see also Re VFF Chicken Meat Growers' Boycott Authorisation [2006] ACompT 2 at [83]. There must be a commercial likelihood that the applicant will act in such a way as to bring about the claimed benefits or detriments. Various options for achieving claimed benefits or avoiding claimed detriments, including any less anti-competitive options, may be explored and weighted appropriately: Qantas at [206]; AGL at [163].
[90] Claimed benefits and detriments must be of substance and have durability: see Qantas at [205]; see also Sea Swift at [46]. They should be sufficiently capable of exposition, whether quantitatively or otherwise, rather than "ephemeral or illusory": see Qantas at [156]; see also Sea Swift at [45]. Any estimate as to their quantification should be robust and commercially realistic: see Qantas at [206]; see also Sea Swift at [46]; see also AGL at [163]. The assumptions underlying claimed benefits or detriments must be spelled out in such a way that they can be tested and verified: see AGL at [163]; see also Sea Swift at [46]-[48].
[91] As stated in Qantas at [207]:
Whilst we recognise that public benefits are easy to assert, but are much harder to prove in advance of their creation, that does not deter us from demanding a high standard of commercial and social accountability in the estimates presented to us. Accordingly, we do not believe that there is anything to be gained by fanciful and speculative modelling of benefits where the underlying assumptions are not clearly spelled out, where the estimates have not been subject to rigorous sensitivity analysis, and where the estimating process is not wholly transparent.
[92] Nevertheless, in AGL at [172], the Tribunal stated:
The language of s 95AZH does not dictate mathematical precision. In practice it will often be the case that the factors going to the balancing exercise to determine whether the Tribunal has the necessary satisfaction as specified do not lend themselves to precise quantification. Even if precise quantification of the value of all competing benefits and detriments to the public cannot be made, the Tribunal is required to decide whether it has the specified level of satisfaction. If it does not, it may not approve the proposed merger or acquisition. If it does, it may do so. As the ACCC said in its final submissions, the Tribunal is called upon to make a robust and commercially realistic judgment, exposed by its reasoning process: cf Re Qantas at [206]-[210].
[93] Finally, it is to be observed that even if the Tribunal is satisfied that the acquisition is likely to result in such a benefit to the public that it should be allowed to occur, the Tribunal has a residual discretion to refuse authorisation: Application by Medicines Australia Inc [2007] ACompT 4 at [122]-[128] ('Medicines Australia').
29 The legal principles underpinning the Tribunal's mandatory considerations were also described in Application by Tabcorp Holdings Limited [2017] ACompT 1:
Mandatory considerations
[105] Section 95AZG(2) sets out matters that the Tribunal is required to take into account in making its determination which include:
(1) any submissions in relation to the application made to it within the period specified by the Tribunal. Written and oral submissions were received from Tabcorp, Tatts, the ACCC, the Victorian Racing Interveners, CrownBet and Racing.com. In addition, the Tribunal received written submissions from Australian Leisure and Hospitality Group, Arana Leagues Club, Australian Hotels Association (National), Australian Hotels Association (Victoria), Australian Lottery and Newsagents Association, Community Clubs Victoria, Mr David Fowler, Mercury Group Victoria, Queensland Hotels Association, RWWA, Racing Clubs Tasmania, Responsible Wagering Australia, TAB Agents' Association of NSW, Tasmanian Hospitality Association, and Victorian Off-Course Agents Association;
(2) any information received pursuant to a notice issued by the Tribunal under s 95AZC. Notices were issued to Tabcorp, and responses received;
(3) any information received pursuant to a notice issued by the Tribunal under s 95AZD(1). Notices were issued to Tatts, the Victorian Racing Interveners, CrownBet, Racing.com, and interested third parties including VicRacing, Ladbrokes, William Hill, Betchoice, Sportsbet, Betfair and Bet365;
(4) any information obtained from consultations under s 95AZD(2);
(5) a report by the ACCC provided to the Tribunal under s 95AZEA (received 27 April 2017); and
(6) any information or evidence provided to the Tribunal in the course of the ACCC assisting it under s 95AZF.
[106] The Tribunal has not canvassed individually each and every submission or piece of information provided to the Tribunal. However, the Tribunal has taken into account in the course of these Reasons the information and submissions provided to it. The vast majority of the content of the submissions and information provided to the Tribunal was covered in the submissions and information provided by the various participants at the hearing.
30 The Tribunal reiterates in these Reasons that the applicable legal principles and mandatory considerations remain unchanged from its earlier Reasons. We supplement these with the following observations regarding the proper approach to assessing claimed benefits or detriments.
31 The Full Court reiterated in ACCC v Australian Competition Tribunal at [55]:
[t]he language of s 95AZH(1) of the Act requires the benefit to the public to result from, or be likely to result from, the proposed acquisition. Those words import a requirement of causation or probable causation.
The Tribunal must consider the claimed benefits and detriments that will be caused or probably caused by the proposed merger. Benefits and detriments that will or may arise in both the future with and without the merger are not relevant to the analysis. The claimed benefits and detriments must be of substance and have durability. Any estimate as to their quantification should be robust and commercially realistic. Together with the requirement of commercial likelihood, the necessity of substance and durability effectively means benefits and detriments must be material to the assessment of "such a benefit to the public that the acquisition should be allowed to occur".
32 The Full Court did provide some guidance on the "balancing exercise" required. At [7], the Full Court stated:
Having examined the benefits and detriments resulting from, or likely to result from, the proposed acquisition, the Tribunal is then to determine whether the overall benefit is 'such' that the acquisition should be permitted. This requires a balancing exercise to determine the public benefit. The Tribunal has referred to this as a balance-sheet approach (Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 ('QCMA') at 512) and this is an informative metaphor. It may suggest, however, that the detriments are to be deducted from the benefits leaving only a net benefit. This is informative but may be likely to be a little unrealistic. Many of the benefits and detriments will be incommensurable and possibly unmeasurable as well. To take an example from this case: how does one weigh the improved efficiency of the wagering market against the perils of problem gambling? It seems to us that the benefits and detriments may more usefully be assayed by means of a process of 'instinctive synthesis' sometimes referred to in the law surrounding the formulation of criminal sentences where a similar problem is encountered: see Wong v The Queen [2001] HCA 64; (2001) 207 CLR 584 at 611 [74]-[75] per Gaudron, Gummow and Hayne JJ. This may be referred to as weighing, but to refer to balancing, or a balance-sheet approach, may suggest that the essential qualitative assessment has a greater degree of precision than the statutory subject-matter permits.
33 The Tribunal makes some further observations on this reference to "instinctive synthesis". The Tribunal must still identify, with as much precision as possible, each relevant detriment and benefit, and explain as far as possible, the balancing exercise undertaken by it.
34 As explained in Wong v The Queen (2001) 207 CLR 584, by Gaudron, Gummow and Hayne JJ at [75]:
[T]he task of the sentencer is to take account of all of the relevant factors and to arrive at a single result which takes due account of them all. That is what is meant by saying that the task is to arrive at an "instinctive synthesis". This expression is used, not as might be supposed, to cloak the task of the sentencer in some mystery, but to make plain that the sentencer is called on to reach a single sentence which, in the case of an offence like the one now under discussion, balances many different and conflicting features.
(Emphasis in original; footnote omitted)
35 The statement has been approved by the High Court on many occasions: see eg. Director of Public Prosecutions v Dalgliesh (a pseudonym) [2017] HCA 41 at [6].
36 The other observation to make is that the nature of the benefit or detriment will influence the extent that such are commensurable or measureable. For instance, there is a method of making a more exacting determination as to the dollar value of cost savings, whereas, for example, the perils of problem gambling may not be easily quantified. In the case of cost savings, it will be apparent the Tribunal has considered all the specific evidence available and has then considered the evidence with the advantage of its own expertise and the submissions of the parties and participants.
37 The Tribunal makes an observation as to the concept of benefit to the "public". The Tribunal observes that in ACT 1 of 2017, CrownBet stated in its submissions:
A "public benefit" is "anything of value to the community generally… The "public" is the Australian public. However, the more limited the section of the community that receives the benefit, the less weight it should receive. Thus, a firm's cost savings can be a public benefit, but they will be given more weight if they are passed through to consumers than if they are retained by the firm's shareholders.
38 However, CrownBet submitted that the Tribunal erred in its construction of the term "benefit to the public" in s 95AZH(1) of the Act in Application by Tabcorp Holdings Limited [2017] ACompT 1. In particular, CrownBet submitted that benefits that only accrue to a limited section of the community cannot qualify as benefits "to the public":
In some previous decisions, the Tribunal considered that benefits that only accrue to a limited section of the community could be benefits "to the public" (albeit they should be given less weight than gains that flow to the community generally). Thus, the Tribunal has considered that cost savings that will be retained by the merged entity may constitute public benefits. The Full Court's reasons in [Australian Competition and Consumer Commission v Australian Competition Tribunal [2017] FCAFC 150] might also be read as suggesting such an approach is legitimate.
That approach is erroneous. The plain meaning of "the public" is "the community in general" or "the people as a whole". A benefit that accrues only to a limited class or group or people is not a benefit to the community "in general" or people "as a whole". Indeed, construing section 95AZH(1) so as to allow a benefit that accrues to only a limited class of persons to be taken into account makes the words "to the public" in section 95AZH(1) superfluous. Such a construction would also be contrary to the object of enhancing the welfare of Australians "through the promotion of competition". As the High Court has repeatedly observed, the purpose of the Act is "to promote competition, not to protect the private interests of particular persons or corporations". What is relevant "is the flow-on effect … the effect on consumers". Retaining cost savings rather than passing them on to consumers or the public generally (in the form of lower prices and/or improved services) indicates the existence of market power and an absence of competitive constraint - the antithesis of the object of the Act.
39 CrownBet also submitted that, by reason of the racing industry being a joint production partner in the supply of these services with the Merger Parties, it should not be considered a relevant part of the public for the purposes of ascertaining public benefits under the Act.
40 The ACCC, by contrast, accepted that the term "benefit to the public" does not exclude benefits retained by the Merged Entity, but rather submitted that such benefits should be afforded lesser weight through a "modified total welfare standard" as applied by the Tribunal in past determinations. It also noted that the Full Court did not conclude that the Act required application of the modified total welfare standard over any other measure: ACCC v Australian Competition Tribunal at [67].
41 The Tribunal's preferred approach has already been indicated. The Tribunal does not need to delay in finally adjudicating on this controversy, as on either approach the result is the same in the circumstances of these applications. In other words, whatever approach is taken, the Determinations will be one and the same, and the different approach taken by CrownBet is immaterial to the outcome. This is primarily because the Tribunal is of the view that the acquisition will result, or is likely to result, in benefit to consumers generally because of an increased amount of competition. Additionally, there would also be a benefit to the racing industry in the form of increased product fees and by way of the benefits to shareholders from cost savings. We will elaborate on these matters later in these Reasons.
42 The Tribunal makes this further observation on this issue. The standard economic interpretation of "public benefit" is based on the "potential Pareto principle" and the effects of changes in market conditions are assessed on whether winners could potentially compensate losers and still be better off. The outcomes of perfectly competitive markets are therefore allocatively efficient because they leave no changes to the allocation of production or consumption that would allow such a "potential Pareto improvement". Application of this principle in competition analysis means the costs and benefits incurred by, or accruing to, firms and consumers are weighted equally. Consequently, for instance, if a technological advance increases profits in an industry without initially changing prices, those profits are a public benefit, notwithstanding that they accrue only to the suppliers. If competition between suppliers subsequently means those profits are lost to lower prices and higher volumes of output, further net public benefits arise because consumers' gains outweigh suppliers' lost profits. Such analysis makes no distinction between the identities of the winners and losers, nor is it concerned about the end distribution of wealth and income that arises from market processes. Those redistributive issues are considered best addressed by political processes.
43 Competition is the process that drives market outcomes: prices and the quantities traded and their allocation between buyers and sellers. The strength of that process is measured by the extent to which it leads to allocatively efficient outcomes, i.e. the exhaustion of potential Pareto improvements. The competitive process may therefore encompass takeovers and mergers where this lowers industry costs. Conversely, mergers may lead to a lessening of competition by weakening the processes that ensure efficient outcomes, for instance, if a merged entity acquires and exercises the power to unilaterally and profitably increase prices. However, where a vigorous competitive fringe exists, the removal of a competitor, even a vigorous one, need not lead to a lessening of competition or the creation of competitive detriment.
44 The standard economic approach underlies the calculations submitted by Mr Mellsop and Mr Houston of the potential competitive detriment from hypothetical increases in wagering yields. Although their method could easily be extended to estimate the distribution of gains and losses between bookmakers and punters, their results are reported as unweighted, or equally-weighted, net losses.
45 The Tribunal does need to assess the public benefits of a merger slightly differently, first because assessment of public benefits may require the assaying of "incommensurable and immeasurable" benefits and detriments necessitating the use of a process of "instinctive synthesis" and, second, because it may be appropriate to apply the "modified total welfare standard" and weigh certain of the benefits and detriments differently, both to reflect the uncertainty of their realisation as well as their distribution between the Merger Parties and the wider public.
46 Putting aside the real benefit to consumers because of an increase in competition, the benefits claimed by Tabcorp and Tatts accrue directly to the Merger Parties in the first instance and are associated with secondary benefits to racing stakeholders and governments. It is clear that some of the benefits will accrue to the "public", being parties other than Tabcorp and Tatts, but the direct merger benefits nevertheless also contribute public benefits for the purpose of the Tribunal's assessment. Cost reductions free resources for use elsewhere in the economy and increased profitability generates benefits for Australian shareholders. Even if it created no benefits other than cost savings, a merger without detriments would still generate public benefits as long as those savings pass to Australian shareholders. Whether there are net public benefits (that is, "such a benefit to the public that the acquisition should be allowed to occur") when there is also the possibility of a lessening of competition then depends on the balance of the cost savings against the magnitude of the competitive detriments. The Tribunal in these applications is of the view that there is not any real possibility of a lessening of competition, but on the contrary, an increased amount of competition is the likely result.