The need to champion competition in Australia

7 November 2014

Addressing the RBB Economics Conference in Sydney, Australian Competition and Consumer Commission Chairman Rod Sims backed economic reforms proposed by the Harper Review Panel.

“The Harper Review Panel has proposed reforms to the delivery of human services; cost-reflective road pricing; removing cabotage restrictions on coastal shipping; de-regulating trading hours recognising that internet trading never stops; and so on. These are important microeconomic reforms.”

The speech makes three vital points.

First, Mr Sims said the once in 20 year review of competition policy is an opportunity to make a choice about section 46 (misuse of market power) of the Competition and Consumer Act.

“We can either stay with a known, but flawed law which currently has limited utility, causes many unnecessary arguments, and could be used to prevent pro-competitive behaviour.”

“Or, we can seek to pursue the objective of the Act, to enhance ‘the welfare of Australians’ by, as other key sections of the Act do, focussing on the purpose or effect of substantial lessening of competition (SLC).”

He said the ACCC accepts that companies generally do not set out to break the law.

“But the test for misleading and deceptive conduct, for example, does not include intent.”

“Companies simply strive to maximise profits and sometimes cross important lines.This can happen with misleading and deceptive conduct, agreements that SLC and, surely, with a misuse of market power.”

“I have heard concerns from many leaders in the business community about an effect of SLC test. It seems to me those concerns are based on a misunderstanding."

“Some business leaders have said that, for example, when they innovate, actively compete on price or enter a new geographic market, and the result is that they succeed and most others fail, they fear their outcomes will have the effect of SLC.”

“This confuses the outcome with how you get there. To be held to have substantially lessened competition you have to do something anti-competitive; pro-competitive behaviour, whatever the outcome, cannot be held to SLC,” Mr Sims said.

Second, Mr Sims said the Harper Panel’s draft recommendations on extending the Act to cover more government activities is one of its most important proposals.

“In particular, the actions taken by governments in the course of operating and/or privatising major infrastructure or other assets can have profound and long-term effects on competition. These ultimately flow on to consumers in the form of higher prices or reduced levels of quality or innovation.”

“The Harper Panel’s recommendation on the Crown being subject to competition law when it undertakes activity in trade or commerce may also apply to such actions.”

Third, Mr Sims said issues around competition advocacy and market studies need to be debated and decided in the context of the competition review.

“As well as participating in commercial activity, there is a great deal done by all levels of Government that has an impact on competition and consumers.”

“For example, Governments make planning decisions about where commercial premises can operate, they set rules about the hours shops can be open, they grant licences to explore for minerals and they make rules about how particular commercial activities should be conducted.”

“While the role of government in these instances is to act on behalf of the broader public interest, these decisions can also have an impact on competition. Such anticompetitive outcomes may not otherwise be a breach of the CCA.”

“This problem is addressed in many countries by giving competition agencies an ‘advocacy’ function which empowers agencies to address public restrictions on competition. Advocacy usually involves the promotion of a competitive environment by examining markets, seeking to understand barriers to competition and then proposing ways to remove those barriers,” Mr Sims said.

Mr Sims said the idea of the ACCC having a market study power is not radical.

“Many overseas competition regulators have this ability, and having a broader toolkit can take the focus away from relying on enforcement.”

“Such a role could be helpful to both businesses and governments in allowing markets to work better, without committing them to action. Indeed, they may make it clear that no particular action is needed, and that markets are in fact working effectively.”

In concluding, Mr Sims said “we have many debates before us. Sound economics, as always, can make a valuable contribution to addressing them.”

See also: Bringing more economic perspectives to competition policy and law

Release number: 
MR 274/14
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