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

The inquiry considers that the arguments made by
the ACCC in 1995 with respect to competition are still
relevant. Generally, networks are not in a position to offer
service differentiation because fares remain fixed and
networks cannot directly acquire more licences. Therefore,
competition largely focuses on establishing a recognisable
brand for consumers and on acquiring affiliated operators.
It is difficult to understand how, given the relevance of
geographic considerations, there could have been limited
competition for drivers and operators between West
Suburban and Silver Top as their historic catchment areas
for taxi operators are adjacent to one another.
In 1995, the ACCC also dealt with another important
argument about the efficiency of network operation and
whether this could justify an acquisition. The Commission
noted that such efficiencies were not merger-specific;
that is, in the absence of the merger, Silver Top would
have had a cost advantage if it was more efficient than
North Suburban and could have attracted more taxi
operators without the need to acquire North Suburban.
A further concerning feature of other ACCC decisions
has been the reliance on regulation as a merger-specific
factor that lessened concerns about competitive
detriment. In Acquisition of Murrell Enterprises Pty
Ltd trading as Bay City Cabs (BCC) by Silver Top Taxi
Service Limited the ACCC noted that it “took into
account that the regulation of the provision of taxi hire
services in Geelong including pricing is the responsibility
of the Victorian Taxi Directorate”. 57 It is unclear why this
should be a relevant factor and it is concerning if it was
a significant factor as the purpose of merger regulation
is to prevent the accumulation of market power which
includes, among other things, the power to set higher
prices for consumers. Further, the key price at issue
is not the price paid by users for taxi services or for
booking services. Rather, the key price is that paid by
taxi operators for NSP services. This has never been
regulated by the VTD or any other statutory authority.
Vertical mergers
The key vertical mergers considered by the ACCC in
recent times have involved Cabcharge. The particular
concern that has been raised in relation to a number of
acquisitions by Cabcharge is the potential for Cabcharge
to protect its strong position in markets for electronic
payments and processing by raising barriers to entry.
The particular concern in assessing these mergers is that
NSPs have an important role in determining the kinds
of equipment (and particularly payments processing
equipment) that are installed in a taxi.
In relation to the recently cleared acquisition by
Cabcharge of Yellow Cabs in Adelaide, the ACCC
released a statement of issues suggesting that the
acquisition was likely to cause a competition concern.
This concern appeared to be driven by submissions that
suggested that Cabcharge’s acquisition would reduce
the size of the market for competing payment instrument
providers or processors, because Cabcharge would
refuse to deal with other payment instruments and would
install only Cabcharge processing units. This followed
an earlier attempt by Cabcharge to enter the market in
Adelaide through a proposed acquisition of Suburban
Taxis in 2008. In that case, Cabcharge withdrew from the
acquisition before the ACCC could make a determination.
The ACCC ultimately considered that the proposed
acquisition of Yellow Cabs was unlikely to substantially
raise barriers to entry and therefore was unlikely to
substantially lessen competition in these markets. Within
the context of the Adelaide metropolitan area, the ACCC
considered that there would still be two independent taxi
networks (each with a substantial share of affiliated taxis)
that could be approached by new entrants.
The ACCC’s decision in this instance is puzzling,
given the context of its other enforcement actions
against Cabcharge. The ACCC previously undertook
actions against Cabcharge for refusing to supply – on
commercial terms – services that would allow its cards to
be processed by competing payments processors. 58 The
inquiry understands that nothing has changed since the
terms of the ACCC settlement were released: Cabcharge
still does not provide access to any independent
payments processors.
In this light, it seems highly optimistic to expect that
firms considering offering competing non-cash payment
instruments will not be deterred by increasing vertical
linkages between Cabcharge and NSPs, particularly
given Cabcharge’s very high market share in the market
for non-cash taxi specific payment instruments.
57 ACCC (2006), Silver Top Taxi Service – proposed acquisition of
Murrell Enterprises Pty Ltd, www.accc.gov.au/content/index.phtml/
itemId/764968/fromItemId/751043 accessed 3 April 2012
58 See case study in section 12.4.2
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