Part D – Understanding and improving industry performance (PDF ...

Competition analysis
A useful distinction can be made between mergers
and acquisitions that are ‘vertical’ and those that
are ‘horizontal’.
• Horizontal mergers are those between firms
competing in the same market (or at the same
functional level of the market) – for example,
two depots in the Melbourne area. These kinds
of mergers are the standard issue of concern
in competition analysis and there is a relatively
well-defined body of law and economics that
suggests that increasing horizontal integration is
prima facie undesirable. Of course, there can be
many reasons why aggregation is ultimately found
to be not anti-competitive.
• Vertical mergers are those between firms operating
in vertically-related markets (at different functional
levels of the market) – for example, between a depot
and a supplier of payment services to that depot.
These kinds of mergers tend to be less problematic
than horizontal mergers, as there is often no obvious
source of harm where the two firms are not currently
competitors. However, the issues involved can often
be complex – and all the more so when the merger
or acquisition has an element of increasing both
horizontal and vertical integration.
The mergers and acquisitions in the taxi industry
considered by the ACCC have more commonly been of
the vertical type. Primarily, this is due to the activities of
Cabcharge, which has acquired a number of NSPs in
capital cities in Australia over the last 15 years.
Horizontal mergers
A number of horizontal mergers have been considered
by the ACCC in Victoria, particularly in Melbourne.
These include:
• The (failed) acquisition of North Suburban
by Silver Top
• The acquisition of North Suburban by Black Cabs
• The acquisition of Embassy by Arrow
• The acquisition of Arrow by Black Cabs
• The acquisition of West Suburban by Silver Top
• The acquisition of Geelong Cabs by Silver Top.
Generally, the ACCC has been permissive of horizontal
mergers in recent times. This reflects a significant change
since the Commission’s 1995 decision to block the
acquisition of North Suburban by Silver Top. It is not
obvious why this shift has occurred as – as discussed
above – the ACCC’s approach to market definition has
remained broadly the same over this period.
In 1995, the ACCC’s analysis about how the proposed
North Suburban acquisition would affect competition
included the following comment:
The Commission considers that a significant anticompetitive
effect of the proposed acquisition is the
reduced number of depots competing to attract the
business of taxi operators in metropolitan Melbourne.
The Commission is of the view that there would be
little commercial imperative following the proposed
merger for Silver Top to achieve the highest common
denominator in terms of operating efficiencies or
customer service, and that this detriment has not
been outweighed by any demonstrable public benefit.
…the Commission has found that the barriers to entry
for these businesses remain substantial, and mitigate
against their long-term prospects. The Commission
therefore considers it important that the goodwill
attaching to North’s business name, its radio booking
facilities and telephone lines, and the substantial
number of operators aligned to the depot not be
subsumed by the largest participant in the market.
The loss of North as a depot deprives taxi drivers of
a significant alternative in their choice of depot based
on size, location, functions, services to the public
and corporate identity. Should Silver Top’s integrated
computer system prove to reduce unit costs and
dead kilometres travelled, thereby improving the
efficiency of individual operators, then taxi drivers
will undoubtedly exercise their power of choice to
transfer to the Silver Top depot and take advantage
of its system. This would occur in the event that the
acquisition does not proceed. 55
In 2009, the ACCC did not oppose Silver Top’s
acquisition of West Suburban and gave the
following reasons:
In relation to the supply of taxi services to the
general public, the ACCC noted that, given the fares
paid by the general public are regulated, the current
nature of competitive tension between depots in
attracting jobs primarily relates to the quality of taxi
services provided.
The ACCC found that many dimensions of service
quality on which taxis compete are more within the
control of the taxi driver or operator than the depot.
On the dimensions of service provision on which
depots do compete, the ACCC noted that Black
Cabs and Silver Top regard each other as their
closest competitors.
55 Ibid., p.31
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