Why competition matters
Australia’s open market economy depends on strong
competition between businesses.
Competition encourages individual businesses to innovate and find ways to work more efficiently. This results in:
- lower prices
- better quality products and services
- more choice for consumers
- increased prosperity and welfare of all Australians.
For competition to stay healthy, businesses must behave in an acceptable way towards competitors and suppliers. The Competition and Consumer Act 2010 sets rules for business behaviour so that all businesses can compete on their merits.
Business behaviour that is illegal
Some behaviour is so damaging to competition that it’s banned outright.
It's illegal for businesses to collude with competitors by:
- fixing prices
- rigging bids
- sharing markets, or
- controlling output as part of a cartel.
These activities cheat consumers and other businesses and restrict economic growth.
Imposing minimum resale prices
The law bans suppliers from setting minimum prices for the resale of their products or services.
Imposing minimum resale prices stops retailers competing on price, increasing what consumers pay.
Business behaviour that is potentially illegal
There are also a range of business behaviours that may damage competition, depending on the circumstances.
Business behaviour can break the law when it has the purpose, effect or likely effect of
substantially lessening competition in a
Business behaviour substantially lessens competition when it interferes with or damages the competitive process in a market in a meaningful way. This is usually by deterring, hindering or preventing competition.
When competition is substantially lessened
Competition is substantially lessened when, as a result of the business’s behaviour:
- the business’s competitors are restricted from competing effectively
- the business is able to significantly and sustainably increase its prices
- it would be very hard for a new business to set up and start competing.
Competition can also be substantially lessened when 2 or more businesses engage in conduct that weakens competition.
Cooperation among businesses
Generally, competition relies on businesses making independent decisions.
When businesses communicate and cooperate, they risk damaging competition and breaking the law.
Businesses that want to join together to negotiate with a supplier or customer through collective bargaining first need permission. This is known as an exemption.
Misuse of market power
It's not illegal to have market power. However, businesses must not misuse this power to stop other businesses competing on their merits.
When the misuse of market power substantially lessens competition, it is illegal.
A business risks breaching competition law when it engages in exclusive dealing by restricting how its customers or suppliers do business.
While exclusive dealing is common in legitimate business arrangements, it is illegal when it substantially lessens competition.
Legitimate business behaviour
As long as a business is competing on its merits rather than trying to stop other businesses from competing, its behaviour is unlikely to break the law. This is the case even if a competitor’s business is harmed.
Businesses competing on their merits do things like:
- investing in research to improve products or services, or invent new ones
- advertising to win customers, without making false or misleading claims
- improving their processes to lower costs.
Behaviours like these benefit consumers and the economy, and are not illegal.
Some common misconceptions
Some people believe these actions are illegal when they're not.
It’s not illegal to:
- innovate and launch new products which disrupt a market
- respond to price competition by offering lower prices
- open a shop of the same kind over the road from an existing shop
- refuse to supply another business, unless it substantially lessens competition, results from cartel conduct, or is part of resale price maintenance.