Our economy needs more competition on its merits

13 September 2014

Australian Competition and Consumer Commission Chairman Rod Sims today called for a strong competition policy in Australia to drive economic efficiency and performance.

In an address to the Law Council of Australia’s Competition and Consumer Committee’s AGM, Mr Sims said that a strong competition policy requires two things.

First, it must expose as many sectors as possible to competition and appropriate incentives, including pricing.

“Our submission to the Harper Review highlighted, for example, the need for reform in roads and shipping; the former raises some difficult issues, the latter largely does not,” Mr Sims said.

The ACCC has also highlighted the problems that arise when governments privatise assets to maximise sale proceeds rather than economic efficiency.

“Hopefully now everyone can see the folly of, for example, selling Sydney Airport with the first right of refusal to develop the second Sydney airport. We must avoid such mistakes in the future,” Mr Sims said.

Second, a strong competition policy also requires sensible competition law boundaries around how the profit motive might drive anti-competitive behaviour.

Mr Sims discussed areas where our laws have gaps, which can damage economic efficiency and also do not reflect international best practice.

In relation to the many problems with Section 46, involving the misuse of market power, Mr Sims sought to dispel some myths that have emerged in relation to the ACCC’s position.

Some have said the ACCC’s proposals would seek to stop larger companies competing on their merits lest it hurt smaller competitors.

Mr Sims said this interpretation was not correct.

“Such outcomes are not the purpose of the ACCC’s proposals; nor would our proposals have this effect. Indeed, the ACCC would be at the forefront opposing any laws that sought these outcomes.”

“Let me be very clear where the ACCC stands in this debate: we are for competition,” Mr Sims said.

The ACCC wants to ensure competition is on its merits by dealing with exclusionary behaviour, when a business takes steps to prevent competitors entering a market. For example, the dominant firm buying up all available land, restricting supplies of essential materials, engaging in predatory pricing, or tying up customers in long-term contracts with anti-competitive rebates.

“I feel I am forced to use a sporting analogy to get our point across,” Mr Sims said.

“If Hawthorn, currently a strong team for those unfortunate people who do not follow AFL, were playing Melbourne, currently not so strong, the umpire would never seek to step in to avoid the obvious outcome. Let the competition occur on its merits.”

“Our various proposals to change Section 46 are in essence not aimed at what happens on the playing field, but instead seek to address exclusionary behaviour akin to when one team with substantial market power has locked the other in their change rooms and is seeking to win by default.”

“Currently, we would argue, the key problem with Section 46 is that it would not address this exclusionary behaviour because even companies without market power can have a policy to change locks on a regular basis.”

“The ACCC has had investigations into serious exclusionary behaviour where it could not take action because of the current wording and interpretation of Section 46. Not pursuing such actions damages our nation’s economic efficiency and performance,” Mr Sims said

The ACCC has proposed three options for change and acknowledges that there may be other ways to fix the widely-recognised problems with Section 46.

During his speech, Mr Sims also warned against overriding competition laws to promote ‘National Champions’.

“Preserving domestic competition is important for promoting the global competitiveness of traded products, both because domestic rivalry sharpens global competitiveness and because products which are not traded internationally may be inputs into traded goods.”

“Promoting national champions, of course, takes us in the opposite direction to microeconomic reform,” Mr Sims said.

“All these issues now rest with Professor Harper and his panel, and we will await their views. We are told the draft report is due in AFL Grand Final week.”

See also: Enhancing Competition Policy.

Release number: 
MR 227/14