Big business v small business – vigorous or vicious competition

4 November 2004

The role of the Australian Competition and Consumer Commission was to promote competition to the benefit of consumers – not to favour one sector over another, ACCC Chairman, Mr Graeme Samuel, told the Australian Graduate School of Management dinner in Sydney tonight (4/11).

"The Commission cannot interpret its responsibility to promote competition to mean the protection of individual companies and the outlawing of vigorous, legitimate competition – even where that competition causes difficulties for individual firms", he said.

The distinction between promoting competition and protecting consumers was confused and blurred by some sectors, he said.

Competition regulators were required to analyse markets to decide if certain behaviours would or could substantially lessen competition.

"This is a task that needs to be undertaken independently, rigorously, transparently and objectively to ensure that the primary focus is on the interests of consumers, that is to say the community at large and not to insulate certain sectors of business from the normal competitive disciplines.

"The difficulty in this area is that so often those who seek regulatory intervention have failed first to demonstrate the case for intervention", he said. "Indeed, in some cases, they have been reluctant to have the relevant market, and the course of behaviour complained of, subjected to an independent rigorous analysis to determine whether there is a case for intervention.

"The point is, if we intervene too soon and without transparent, open and independent analysis, we may be acting to protect competitors, at the expense of vigorous, lawful, competitive behaviour, and, as a consequence, disadvantage the consumers".

Policy makers needed to be continually on the alert that they were not drawn back by powerful private interest groups to protect specific sectors of business from the competitive environment.

"Nowhere has this dilemma been more starkly illustrated than in the case of the retail grocery market (and more recently, the linkage with the retail petrol market) ….where

many of the small retailers (and their wholesale suppliers) maintain if they are not protected from competition, a market duopoly of Coles and Woolworths would result".

This, the smaller retailers argued, necessitates intervention by the regulator. But such claims have not been demonstrated by independent rigorous analysis.

"Some of the claims come from smaller independent outlets or their representatives who are concerned at their ability to compete in an increasingly competitive environment.

"But some are made by powerful, vested interests who are seeking to preserve or enhance their own special position in the market to the disadvantage of consumers".  

Mr Samuel said the claims seemed to ignore the 4,200 strong Metcash group, supplied by its wholesale operation, which had 'rosy' profit results and outlook; the extensive Foodland group; Aldi, which was seeking to expand its sites; and the prospective entry of the Costco Group, with its large warehouse style hypermarkets.

The brisk state of competition in the sector was underlined by a recent report to the Commonwealth which underscored that the Australian grocery sector margins were among the lowest in the world – "hardly the sign of a rampant duopoly extracting monopoly profits".

"And if we turn to the petrol market, what becomes clear is that far from the existence of a 'cartel' between the four oil majors, as is often claimed, or the encroaching and supposedly inevitable duopoly of the two major supermarket chains, what we are seeing is, in the words of one major player who has publicly indicated it won't be participating in the new wave of shopper docket schemes, 'a culture of discounting' with competitive responses being made by major competitors in order to attract and retain custom.

"The reality is that the linkage of petrol discounting to retail grocery sales is no more than a loyalty or marketing program like Fly Buys", he said. "While these schemes initially focussed on the two major supermarket chains they have extended to include Metcash/IGA, major hardware chains, Dimmeys Department stores and finance brokers".

Mr Samuel said petrol had been chosen because it was the most consumer-price sensitive commodity in Australia: "In what other market will people drive from suburb to suburb checking prices?"

The retail and grocery sectors were undergoing rapid change, driven by consumer preferences.

"…those that do adapt will survive, indeed thrive; while those which are unable to adapt, or rest on their belief that governments or regulators will step in to protect them, will languish and may ultimately fall", he said.

A full text of the speech will be available on the ACCC website.

Release number: 
MR 242/04
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