Retailers have warned that consumers could face higher prices if the government adopted a Harper review proposal to introduce an “effects” test into the misuse of market power rules.

The panel’s final report finds the rules are now deficient and out of step with international practices, ignoring the pleas of the major supermarket chains to abandon the plan.

Woolworths said the proposal will “chill” competition while the Australian National Retailers’ Association warned the government against adopting a measure that would increase regulatory burdens, especially given it had committed to cutting red tape for business.

ANRA chief executive Anna McPhee said the test “will increase complexity and uncertainty and unlike the final report, the government should not dismiss the impact this will have on business”.

Ms McPhee said the test would “dampen pro-competitive behaviour”.

Under an effects test, small businesses would no longer be required to prove that a large company had acted with the “purpose” of damaging a competitor. The existing “purpose” test would be changed to assess whether the company had acted with the “purpose, effect or likely effect” of substantially lessening competition.

The test, first mooted in the panel’s draft recommendations last year, was strongly opposed by Coles and Woolworths, who warned consumers could face higher grocery prices in the face of higher regulatory costs.

The major retailers secured other wins, including calls to deregulate retail trading hours. The review urges governments in Western Australia, Queensland and South Australia to relax restrictions on trading hours within two years.

The review panel also wants governments to reform planning and zoning laws within two years to encourage competition.

The Business Council of Australia warned in its response to the draft recommendation that it could take years or decades of expensive litigation for the courts to establish appropriate principles for an effects test because there was no guidance on the kinds of conduct that would be prohibited.

The review’s final recommendation removes a defence for companies if they could prove the conduct was a rational business decision or was for the long-term benefit of consumers, a proposal lawyers said was unworkable.

Instead the review recommends directing courts to have regard to a range of factors when deciding if there has been a substantial lessening of competition, including if the conduct enhanced “efficiency, innovation, product quality or price competitiveness”. The courts should also weigh up the extent to which the conduct prevents, restricts or deters the potential for competition in the market or new entry into the market.

The review, chaired by Ian Harper, acknowledged that the effects test could lead to higher costs, but this was outweighed by the benefits of “more effective prohibition on unilateral anti-competitive conduct”.

A survey conducted on behalf of Masters Grocers Australia found 72 per cent of respondents believe the $88 billion grocery sector is too dominated by Coles and Woolworths. Only 22 per cent believe the level of competition is “healthy”.

MAJORITY FAVOUR TOUGHER COMPETITION LAWS

A large majority of respondents – 75 per cent – said competition laws should be strengthened to deliver a range of benefits including lower prices, greater choice and a generally fairer society.

Master Grocers Australia is a national industry association representing Australia’s $9 billion independent grocery sector.

MGA chief executive Jos de Bruin said existing competition laws had allowed Coles and Woolworths to dominate the grocery market by lifting their combined share to between 75 and 80 per cent of supermarket sales.

“This survey shows a large majority of people believe there is something wrong with this state of affairs,” Mr de Bruin said. “They think the duopoly’s market concentration has already gone too far and they don’t believe there is healthy competition. They are concerned that they are the losers in terms of price and they want much more choice and variety. As one of the survey respondents put it: more of the same is not competition.”

But ANRA rejected the survey’s conclusions, saying the Harper review committee’s draft report estimated the market share of the major supermarkets to be 55 per cent, not 75 to 80 per cent.

“Claims by other groups are unsubstantiated and misleading,” Ms McPhee said.

 Extracted in full from the Australian Financial Review.