Tricky Dicky, the Colluder-in-Chief

In Case 3, both parties tell each other that they will cut their prices due to an inability to sell boxes. While the price exceeds marginal cost, both parties have an incentive to cheat. When the price equals marginal cost, the players no longer have an incentive to cheat. Assume that at 110c per box, price equals marginal cost (and for that matter, also average total cost). At a price under 110c per box each firm starts to bleed.

At 110c, the total output is 4.5 million yielding industry revenues of $4.95m. From a cartel perspective, this compares unfavourably with a collusive arrangement limiting output to 3.1 million boxes selling at 175c ($5.425m)

In short: when both firms cheat, as in Case 3, they act as though they were competitors with no agreement in place. In this situation, economic profit is zero. “Normal” profits only are made.

While economists treat the study of oligopolies as a game, industry box barons like Amcor’s (former CEO) Russell Jones treat their oligopolies as a game. And as with all games, you win some, you lose some. Barons constantly weigh up the financial costs and benefits of behaving wickedly, and continue to do so as long as it pays.

Assuming Tricky Dicky pays the chump change of $40m in fines, what does this say about our laws against anti competitive practices? That they’re a joke? And is such a fine large enough to ensure that the serial offender does not misbehave again? As if.

For the box baron worth upwards of $5.4 billion, the $40 million represents roughly seven tenths of 1 per cent of his worth. Put it another way. Say you’ve paid off your home, and with super and investments you’re worth a nifty $1 million. How debilitating would you consider being found guilty in court and ordered to pay a $7,400 fine? Not very, I suspect.

No wonder the box baron is luxuriating abroad. I mean wouldn’t you make the most of two private jets at your disposal, if you had the chance?

If Canberra is interested in winning the war on corporate crime, which I doubt, it’s time they got serious.

They could start by considering upping the damages payable to injured (corporate) parties. Take Cadbury Schweppes, for instance, who is seeking $120 million for overpaying Amcor and Visy for boxes, bottles and cans. An improvement to the current situation would be, say if Cadbury proved its case in court, then the conspirators should be liable for say, three times the hurt inflicted, say, $360 million payable to Cadbury Schweppes.

But the real motivator against collusion must surely be criminal penalties. This offence by Mr Pratt is not his first. And given the relatively tiny fine, why should anyone believe it will be his last? But, if the penalty for collusion was incarceration for say 8-15 years at Her Majesty’s pleasure in a fine Victorian correctional facility, I think it reasonable to conclude that Mr Pratt (and for that matter amcor’s Mr Jones) would be somewhat circumspect before conniving again against his cardboard box buying customers. And by implication, against every single Australian consumer.

Alas, while politicians on both sides of the aisle, from Spring Street, Melbourne to Capital Hill continue to praise and laud Tricky Dicky, while their snouts are deep in his trough of largesse, not one of us should expect any major changes soon.