Former Australian Competition and Consumer chairman Graeme Samuel made a telling point in his initial response to the Harper committee’s final report in its review of competition laws. The proposed, controversial, changes to the “misuse of market power” provisions of the law actually have nothing to do with the misuse of market power.

As Samuel said, they actually apply to all conduct of big businesses, regardless of whether they involve an abuse of their market power.

The proposed changes to section 46 of the Competition and Consumer Act advocated by the committee were always going to divide opinion because section 46 has long been contentious and because it will impact the behaviour of large companies in what are generally quite concentrated markets within the domestic economy.

In fact there have been 11 reviews of the section over nearly four decades, with only one of them (and, at that, only a green paper) recommending change.

The most recent substantial review, by the Dawson committee in 2003, rejected the notion of the “effects” test the Harper committee favours because it could blur the lines between pro-competitive and anti-competitive conduct.

The uncertainty that the position favoured by Harper would generate for businesses is why there are those who believe its recommendations could have a chilling effect on competition rather than promoting it.

At present, section 46 says that companies with a substantial degree of power in a market are prohibited from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person to a market or preventing them from engaging in competitive conduct.

The Harper committee proposes changing the section to remove the need to establish purpose — the intent to damage a competitor or competition — and instead to prohibit conduct that has the purpose, effect or likely effect of substantially lessening competition in a market.

In other words, it is all about the effect of a business’s actions, not whether there was any intention to damage a competitor or the competitive process.

The difference, from the business’s perspective, is significant. A large business knows whether or not its actions are deliberately designed with the intention of damaging a rival. It’s quite another thing for a business to try to determine whether a business decision might, regardless of intention or expectation, have that effect.

If the uncertainty the proposed changes, if they were implemented, were to stifle large businesses competitive instincts — preventing them from lowering prices, or introducing innovative products or promotions, for instance — they would actually undermine the competitive process rather than protect it.

The debates around section 46 encapsulate the larger controversies about the relationships between large and small businesses. Complaints about the two big supermarket chains and the four major banks formed a large part (perhaps the dominant part) of the backdrop that led to the review.

The Australian Competition and Consumer Commission’s successful action against Coles for unconscionable conduct towards its suppliers, while encouraging critics of the chains, did demonstrate that the ACCC does have more in its armoury than section 46 in dealing with misuses of market power.

In its draft report the Harper committee had proposed that it would be a defence against breaches of its revised section 46 if it could be established that the conduct would have been a rational business decision if undertaken by company that didn’t have substantial power in a market and was also likely to advance the long-term interests of consumers. It would have been up to the company involved to establish that defence — there was to be a reversal of the onus of proof.

That proposal didn’t get much support, so the committee abandoned it, instead proposing that there should be legislative guidance to the courts to weigh any pro-competitive aspects of the conduct against the anti-competitive behaviour complained of.

That means companies with market power would have to try to second-guess the courts and the balance of pro-competitive and anti-competitive effects before embarking on any significant new strategy or competing more aggressively or creatively.

It would inject more uncertainty into decision-making, inevitably lead to higher costs and is designed to generate more litigation and a higher success rate for the ACCC in anti-competitive conduct cases.

The irony in the apparent success of the small business lobby and their particular campaign against the supermarket chains is that the intense competition between Woolworths and a resurgent Coles has driven grocery price deflation, driven massive productivity gains across their supply chains and produced substantial consumer benefit.

It hasn’t prevented Aldi from expanding, or Costco, but it has adversely impacted smaller competitors without their scale or buying power and smashed a slow-to-respond Metcash.

Is the competition between the two big chains and the impact on smaller competitors an example of the benefits and the flow-on effects of competition or of the misuse of market power? Competition can be brutal but in our system it does generate consumer benefit and underpin economic progress.

If the proposed changes to section 46 are enacted, big companies do become more inhibited and the changes have the chilling effect on competition that many have predicted, the real winners probably won’t be small businesses but large and sophisticated second-tier players like and Aldi or Costco or regional banks or non-banks that don’t have substantial power in a market — yet — and therefore won’t face the competitive constraints of their bigger rivals.

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