Today the Chairman of the Australian Competition and Consumer Commission, Rod Sims, addressed the Committee for Economic Development of Australia (CEDA) at the Brisbane Convention and Exhibition Centre. He outlined the importance of effective competition for the proper functioning of a market economy.
Mr Sims emphasised that “advocates of competition want two things; more sectors exposed to competition and laws that seek to ensure firms do not behave in an anti-competitive way”.
“This is why the recently released Harper report is so important,” Mr Sims said.
He outlined three key issues affecting the competitiveness of markets in Australia: section 46, concerted practices and privatisation.
Mr Sims said that “The current debate on the Harper Review recommendations on section 46, the misuse of market power provision, is confused. While any change is up to Parliament, the ACCC’s objective is to ensure a proper debate”.
“I appreciate that no business wants to face additional competition, and this equally applies to those with substantial market power. Such firms, however, are using arguments against the section 46 changes that are contributing to a poorly informed debate. Let us hope the level of debate improves before it affects the quality of the debate on all of the other Harper recommendations,” Mr Sims said.
Mr Sims outlined three serious misunderstandings which have occurred as part of the section 46 debate.
“First, the debate is mischaracterised as introducing an “effects test”. This suggests, as with debates in previous years, that the proposed changes simply add an effects test to the current law. They do not.”
“The Harper recommendations, instead, are to address several problems with the current section 46 test. Those problems include the requirement that a company must ‘take advantage’ of its substantial market power, and that the purpose of the conduct must be to harm an individual competitor and not the competitive process.”
“The Courts have in effect interpreted the words ‘take advantage’ to mean that a firm with substantial market power can do what it likes to exclude competitors, provided a firm without substantial market power was able to take the same action,” Mr Sims said.
This does not make economic or commercial sense, nor is it sound from a competition policy perspective. It is entirely possible for the behaviour of a firm with substantial market power, such as with the way it bundles its products or prices below cost, to raise competition concerns which are not raised by the same actions taken by a firm without such power.
“Using of the words ’take advantage’ to distinguish pro-competitive behaviour from anti-competitive behaviour is clumsy and inappropriate. Apart from New Zealand, which followed our law, no country in the world uses ’take advantage’ to make this distinction,” Mr Sims said.
Another problem with the current section 46 is that it deals with conduct that is aimed at harming individual competitors. Competition should be vigorous and will often result in individual competitors suffering loss or other harm. What the prohibition should be concerned with is misuse of market power that adversely affects the competitive process rather than individual competitors.
“The Harper panel addressed these problems directly by recommending that the ‘take advantage’ requirement be deleted, and that the target of the prohibition be conduct that has the purpose or effect of substantially lessening competition.”
The “substantial lessening of competition” test is a test that is already used in other sections of the Act, such as sections 45 and 47. The extension of “purpose” to “purpose or effect” would also align section 46 more closely with the long-standing test in those other sections.
“As the recommended test for section 46 involves the same test that has applied in other sections of the Act, I find it surprising that much of the debate is alleging that using the same test in section 46 will create uncertainty,” Mr Sims said.
“Second, the changes recommended to section 46 by Harper are not aimed at supermarkets, or any other particular industry. They are instead aimed at making an important law of general application workable; any change will affect all sectors to the same extent.”
“Despite this, the supermarket sector has dominated the section 46 debate. For example, the two major supermarkets have argued that if the proposed changes to section 46 proceed, they risk breaching the law if they were to open a supermarket in a market where they do not currently operate,” Mr Sims said.
”It is surprising that they would consider that introducing a new competitor into a market could somehow substantially lessen competition. Opening a new store in such circumstances is pro-competitive.”
“Third, the recommended changes cannot increase prices to consumers; rather they will ultimately work to reduce them. Indeed, to ensure the proper functioning of our market economy we need what we do not have now: a workable law that can be enforced against those companies with substantial market power which engage in conduct that harms the competitive process,” Mr Sims said.
“The ACCC particularly welcomes the Harper Review recommendation to introduce provisions dealing with concerted practices,” Mr Sims said.
“The ACCC considers that there is a gap in Australia’s competition law as it fails to address a type of cartel-like behaviour known as a ‘facilitating’ or ‘concerted’ practice. This conduct usually involves some form of ‘tacit collusion’; that is, communication between competitors falling short of an agreement or understanding, but which significantly alters the uncertainty or strategic risk that would otherwise deliver price competition and innovation.”
“In most advanced country competition law systems overseas, concerted practices are prohibited. In Europe for example, anti-competitive information disclosures are prohibited by Article 101 of the Treaty on the Functioning of the European Union. It prohibits ‘concerted practices’ that have “the purpose or effect of distorting competition”.”
“One recent example is the LIBOR and EURIBOR case taken by the European Commission against a large number of international banks in which it determined that those banks had engaged in concerted practices when sharing information on pricing and other transaction details between competitors through ‘chat rooms’. A ‘concerted practice’ case against such conduct would not be possible in Australia,” said Mr Sims.
“This gap in our laws can damage competition and so the proper functioning of our market economy,” Mr Sims said.
Mr Sims also outlined concerns about actions taken by Governments to sell significant assets without appropriate market structures and/or regulatory arrangements being put in place upfront.
He cited the example of the buyer of Sydney Airport being given a first right of refusal over any development of a second Sydney airport some years ago, and the recent sale of Port Botany and Port Kembla to the same owner as another.
He also mentioned recent very concerning reports of a request for an 800% increase in rent to DP World at the Port of Melbourne, which is soon to be privatised.
“This proposed price increase apparently reflects the rent bid by a new third stevedore in Melbourne. An economic regulator would not allow the Port of Melbourne to increase prices on this basis.”
“If the new bidding party saw their bid price being reflected in the rents of the existing players then it means their bid came at no risk,” Mr Sims said.
“In addition, if the higher rent of one player sets the benchmark for others, we risk an upward rent spiral at all Australian ports that will significantly add to Australia’s cost structure and hurt both exporters and consumers.”
“We need to be careful to ensure that privatisation boosts economic efficiency rather than detracts from it,” Mr Sims said.
“Otherwise we risk giving privatisation a bad name because consumers will continue to associate privatisation with higher prices.”
Extracted in full from ACCC.