Populism and the CCA

Speakers: 
Mr Rod Sims, Chairman
Conference: 
RBB Economics
30 November 2017

ACCC Chairman Rod Sims explains how recent changes to the Competition and Consumer Act 2010 (CCA) help protect the competitive process, and why 2018 will be a great year for competition.

Transcript: 

Thank you for inviting me again to speak at this great conference.

Unfortunately it reminds me that another year has passed; but it also heralds my favourite time of year, which is the Australian summer.

We have had an amazing year; but there is so much more to come in 2018.

This year, 2017, saw the Harper Bills become law, the ACCC had another important win in the High Court, the Federal Court convicted NYK of criminal cartel conduct, we won a World Bank/ICN prize for competition advocacy, we began tackling inaccurate broadband speed claims through advertising monitoring and our broadband monitoring program (essential when consumers and businesses make choices in this critical enabling technology), three weeks ago the Federal Court found that Meriton engaged in misleading or deceptive conduct in connection with the posting of reviews of its properties on the TripAdvisor website, we have won our first court action in relation to unfair contact terms (which I will address in more detail later) and taken enforcement action by issuing infringement notices in relation to excessive credit surcharges, the Government gave us many important inquiries to run in electricity, gas and banking … I could use this entire speech simply reciting our activities in 2017.

We have been very, very busy; but we have also been energised.

I believe, however, that 2018 will be an even bigger year for the ACCC as a whole, but also competition law in particular.

Today I will deal with three topics, as follows.

First, the clear role of the Competition and Consumer Act – the CCA – in relation to growing populism.

Second, to draw out why I believe 2018 will be a great year for competition.

Finally, to further highlight my second topic, to raise again the importance of the Productivity Commission’s recommendation for a universal right to your own data, which the Government has now largely adopted.

1. The CCA’s relevance to populism

Let me state two propositions very clearly.

First, under our competition law, fairness is not, and never will be, a theory of harm.

Indeed, we like to see vigorous competition on its merits, and this will see many firms fail.

Second, however, the actual outcomes from the CCA do more for actual and perceived fairness than any other Act I can immediately think of.

The CCA is a wonderful embodiment of what economics has been about through all of its existence: economic efficiency, and fairness for all.

Our primary objective in implementing Australia’s competition laws is to protect the competitive process: to allow firms, large or small, to compete on their merits.

Firms that offer consumers a better deal should be rewarded irrespective of their size.

Some large firms may feel they are unfairly targeted by our enforcement investigations, but it is predominately large firms with significant market power who have the ability and incentive to interfere with the competitive process.

When investigating allegations of anti-competitive conduct, the ACCC develops theories of potential harm to the competitive process.

These theories are tested against the facts as they are collected. Whether or not competition is fair is not a theory of harm.

In competitive markets, there will be winners and losers.

Protecting the competitive process is about ensuring winners and losers are determined by the quality of the offers firms make to consumers.

In competitive markets, some firms prosper while others go out of business.

This is a harsh reality.

To some this may seem unfair.

But it is this process that drives innovation, better business practices and lower prices for all Australians.

What has been fascinating recently is that some of the loudest opponents of the Harper Section 46 changes have suggested that the arrival of Amazon, a new entrant to the Australian market, could be anti-competitive.

To me this shows how much of the recent debate about Section 46 was misplaced.

In terms of misuse of market power, if you open a store in a new town and you set a common price point, you are going to lose money initially if you don't have scale.

Eventually if you get your business plan right you will make money at that price point; even if it damages incumbent firms and puts some out of business this is in no way illegal.

It is hard to see otherwise than that Amazon’s entry into Australia will be good for consumers, despite it not being good for incumbent retailers. Some of these incumbents have called on the ACCC to act against Amazon’s business model.

To illustrate my second proposition, about populism and the fairness achieved from the outcomes from CCA action, consider the following.

Populism is generally meant to mean appealing to the ‘pure people’ in the street against the perceived ‘corrupt elite’[1]. It is often about suggesting that the ‘pure people’, or common person, is not getting a fair go, and is losing out to the benefit of the few.

By its name, what is clear is that such views are meant to be ‘popular’.

Often populism opposes the essence of our market economy because it seems to many that the common person loses out and a small elite get wealthy at their expense.

As I have repeatedly said, however, the role of the CCA is to ensure that our market economy does, and is seen to, work as it should, to the benefit of people generally. Consider some examples.

The section 45 case we brought against Informed Sources and the major petrol retailers was to address private information sharing of near real-time petrol prices that, we alleged, saw petrol process go up more readily, and quickly, to the detriment of consumers.

Before this case was heard by the Court, we obtained a resolution that made this pricing information available to the public.

Petrol pricing is one of the major sources of discontent in the community. A large percentage of the population is convinced they are losing and an ‘oil cartel’ is winning.

Some see petrol prices increased by, say, 25 cents per litre in a day, unrelated to the cost of fuel; others see the price in their regional town at a significant premium to another town close by.

Our message is that consumers are now empowered to choose to avoid purchasing from retailers who are price gouging or otherwise offering uncompetitive prices. It is not hard to time your purchases in the cities to save a lot of money; and in many of the regional towns we have studied there are consistent low-priced players that would welcome more consumers.

Cartels are clearly unfair as they cost ordinary consumers so much. While many have been successfully dealt with or are before the courts, they are persistent and must remain a core investigative priority for the ACCC and every competition agency.

Recent examples where the ACCC has taken action include shipping, polycarbonate roofing, electrical cable, air freight, electrical componentry in cars, foreign exchange in the banking sector, airline tickets, and laundry detergent.   

We now, post-Harper, have a workable Section 46 provision to deal with misuse of market power. When we do take these cases going forward, those businesses previously inhibited from competing on their merits by a firm with substantial market power will feel that they have been treated unfairly prior to our intervention.

Further, as we all know, the essence of consumer law is “do not mislead consumers”. Consumers who have been misled consider this unfair.

Consider Telstra customers who paid for an NBN service at a promised speed they could not receive; those who purchased tickets on Viagogo thinking they were from an official source and at the advertised price; those who believe they were denied appropriate remedies from Ford when they had issues with their PowerShift transmissions; and various health funds who we allege changed important entitlements mid-stream without notice; to name just a few.

Of course, consumer law has some ‘safety valve’ provisions that go more directly to fairness.

Unconscionable conduct is a classic example. Remember the outcry against Coles when smaller suppliers were pressured to hand over large sums of money or, they perceived, be delisted or otherwise face harm from one of their two biggest customers on whom their business depended. Justice Gordon noted in her judgment:

Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. [2]

The entire judgment is worth reading and I encourage everyone to do so. It is as enlightening as it is concerning.

We have a case before the courts now against Murray Goulburn in which we allege it engaged in unconscionable conduct and made false or misleading representations regarding the farm gate milk price, in contravention of the Australian Consumer Law.

Many farmers are in a relatively vulnerable trading position, and rely on transparent pricing information in order to budget effectively and make informed business decisions.

In these circumstances, farmers were entitled to expect Murray Goulburn to have a reasonable basis for determining its pricing, and to regularly update farmers if there was any change in forecast prices.[3]

We allege Murray Goulburn did not do so.

A good example of provisions that directly address fairness are the unfair contract term provisions. Since 12 November last year, the unfair contact term laws have extended to standard form contracts between larger and smaller business.

Terms may be unfair where they cause a significant imbalance in rights and obligations, where they are unnecessary to protect the legitimate interest of the parties and where they cause detriment to the small business.

While framed around fairness, the policy underpinnings and our experience in enforcing the law to date, are that these provisions go some way towards addressing issues of competition, inefficient allocation of risk and creating certainty for investment.

Take for example our first litigated case against JJ Richards, a large waste management company.

The Court declared by consent that eight terms in JJ Richards’ standard form contracts with small businesses were unfair and consequently void.

Some of the terms had the effect of:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term
  • allowing JJ Richards to unilaterally increase its prices
  • allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days
  • creating an unlimited indemnity in favour of JJ Richards
  • granting JJ Richards exclusive rights to remove waste from a customer’s premises
  • preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

In the ACCC’s view, these terms go as much to competition and efficient allocation of risk as much as they do to fairness.

The combination of rollover clauses, limitations on termination and exclusivity limit the ability of customers to choose competing services.

Broad indemnity or limited liability clauses and unilateral variation clauses go to allocation of risk, and often work against the party least able to mitigate that risk.

They also impact effective decision making by small businesses.

These issues are consistent with the type of issues arising in other unfair contract terms matters.

In our action against Servcorp Ltd, a supplier of serviced office space and virtual office services, we allege that terms including the following are unfair:

  • automatically renew a customer’s contract and allow Servcorp to unilaterally increase the contract price after the renewal and without prior notice to the customer
  • permit Servcorp to unilaterally terminate the contract and to impose penalty-type consequences on the customer
  • permit Servcorp to unilaterally acquire the customer’s property without any notice.

This matter is still before the court and is being contested. These examples, however, reflect the type of issues being brought to our attention, and being considered by the ACCC under these provisions.

At the time of the development of this new law, some commentators queried whether the provisions went too far in seeking to determine fairness and the subjectivity that can be associated with that task.

This has not been the ACCC’s experience.

Rather, we see that the provisions have provided the capacity to address, with some objectivity, issues that go to competition and efficiency.

Indeed, we see many areas where the new UCT provisions can be made more effective.

For example, there is logic in the UCT provisions attracting penalties; the definition of a standard form contract could be improved; we should have the ability to use our information-gathering powers to enforce these laws (but do not); and the small business thresholds may need review.

The ACL review has already looked at some of these aspects but as issues arise in enforcing this law, we will raise them with the Government; it is too early to yet do so.

Often small businesses complain about their treatment from large businesses. Our experience with the UCT laws is that often they have very good reason to do so.

As I said earlier, I believe the CCA has a key role in achieving fairness, although it is not a competition theory of harm, and never will be.

First, competition drives firms to win by lowering prices and innovating; the accumulation of market power goes in the opposite direction.

Second, only if consumers are not misled can markets function effectively.

More importantly, however, the CCA can often deal with situations that consumers simply see as unfair, whether such a sentiment is in the law or not.

I believe the accumulation of bad behaviour by some companies that the ‘common person’ sees as unfair has a key role in driving populism.

Also, in my view economic efficiency and fairness are often in lockstep.

2. 2018 will be a great year for competition

The year 2017 will be remembered as the Year of Harper, although the Harper amendments were really the culmination of many years of effort to recalibrate and update Australian competition law.

Perhaps the key changes are three:

  • amending the misuse of market power provision to introduce a substantial lessening of competition test to determine whether a business with a substantial degree of market power has misused that power
  • introducing a prohibition against concerted practices that substantially lessen competition
  • amending the merger authorisation test and making the ACCC the first instance decision maker on applications for merger authorisation.

To accompany the reforms the ACCC has released interim guidelines on each of these topics, and provided an opportunity for consumers, businesses and other interested stakeholders to provide their feedback to the ACCC.

To accompany the first two changes, we have formed an SLC Unit to investigate claims of a substantial lessening of competition.

That unit of ten dedicated competition investigators is focussed solely on substantial lessening of competition work. It will initially be directed to investigate cases under the reformed section 46 and the concerted practices provisions.

It is also coordinating all our initial assessments of competition allegations and has responsibility for finalising our guidelines on misuse of market power and concerted practices.

We expect the SLC Unit will be a catalyst for the reinvigoration of our competition investigations and enforcement work. Intensive investigations will be concentrated and timely, as the SCL Unit’s key role will be to simplify rather than complicate the theories of harm which underpin our enforcement action. This will lead to quicker outcomes, whether in court action or a decision to take no further action.

The changes to Section 46 and the introduction of a concerted practices provision were both clearly needed.

For example, the old Section 46 saw us powerless to deal with a range of behaviour by powerful firms in many parts of the value chain who were stopping their competitors competing on their merits. In addition, I believe the recent egg attempted cartel case that we lost demonstrates clearly why the concerted practices laws were way overdue.

Both of these changes will see more SLC cases taken and the Australian economy will be the better for this.

In the mergers context, the Harper amendments simplified the options available to merger parties to get their deal assessed.

Now parties have the choice of informal clearance, as they did before, or merger authorisation either on competition or net public benefit grounds. 

Importantly we welcome the ACCC again assuming the role of first-instance decision maker, a role that was moved to the Tribunal in 2007 following the Dawson Review, and which was an anomaly versus all other Part IV matters.

Our role in assisting the Tribunal in the intervening period has been extremely challenging and we fully endorse the Harper Review findings that the ACCC is better suited to investigation and first instance decision making, while the Tribunal is better suited to an appellate or review role.

It also means that parties will no longer have the option of forum shopping and changing horses midstream, as Tabcorp did, by seeking a decision based on a different test from the Tribunal rather than waiting for the ACCC decision.

We are confident this reform will facilitate a more efficient regulatory process, the streamlined merger authorisation test will provide greater flexibility to merger parties, and the outcomes will be better for Australia.

Another reason 2018 will be an exciting year for competition law is the five referrals we have with the CDPP for alleging criminal cartel conduct.

While it is up to the CDPP to assess whether these matters meet the criminal standard, we believe they all meet the civil standard.

Either way, they will be in court by the end of 2018. And there are others in our now‑healthy pipeline from our investment in establishing our serious cartels unit.

The year 2018 will also see us continue our push to see significantly higher competition law penalties.

My view is that for too long we have not given sufficient weight to the size of very large businesses in assessing penalties.

We are looking forward to the OECD publishing a report on sanctions for competition law breaches in Australia and releasing it at a workshop in Sydney in late March 2018.

We expect that it will consider whether the level of Australian penalties is sufficiently high to deter contraventions of the law, particularly by larger businesses.

If they see a big gap between the Australian experience and other comparable jurisdictions, the OECD is likely to make recommendations about what can be done to improve deterrence.

I would be surprised if this required a change in the broad legal framework for determining penalties as it already enables very substantial penalties to be imposed that can take into account of the size of businesses’ turnover in determining penalties for competition law breaches. The law was changed in 2007 to allow penalties up to 10 per cent of Australian turnover in some circumstances.

A final reason that 2018 will be an important year for competition is our various market studies coming to fruition, or entering new phases.

Our dairy market study releases its draft report today. It will outline impediments to competition for farmers’ milk, among other matters, which will be much discussed well into next year.

Our motor vehicles market study will report by the end of the year. Among other things it will call for changes to allow for independent repairers to get access to the same technical repair data as manufacturers make available to dealers. This is a fundamental competition issue.

Our communications market study is also dealing with fundamental competition issues; from spectrum allocation to access to peering, and to dark fibre and aggregation services.

Our electricity and gas Inquiries are dealing with much-ignored issues when our energy affordability crisis is discussed. This is the lack of competition in some areas and the high levels of market power in others.

In electricity, for example, many assume that it is only policy uncertainty that limits investment by the three main electricity generators; but they are benefitting so much from the current high wholesale prices.

It is very helpful that the latest report from the Energy Security Board, in chapter 6, puts great weight on market power issues. Indeed, they put forward some ideas to deal with this problem that will be controversial.

In financial services, our residential mortgage products price inquiry has compelled the major banks to provide extensive pricing information.

Beyond this, however, a range of structural and behavioural indicators suggest that Australia’s banking sector is not vigorously competitive.

The large banks each have considerable market power. This, along with government regulation and policies and barriers to customer switching, has impeded challenges by new entrants and smaller rivals that might otherwise be expected.

Our inquiry, from 1 July 2018, will build on the work of the PC to examine and recommend options to bring about more competitive retail banking.

Finally, many of you will be aware from the press that Nick Xenophon has called for the ACCC to conduct an inquiry into platform services and the impact of their growth on competition in media and advertising markets.

This has come about as a consequence of negotiations between the government and Nick Xenophon regarding the passage of the media ownership reforms.

We think that such an inquiry is timely.

We are in a key period of transformation in the media sector. There is a growing perception that the current market position of large digital platforms like Google and Facebook in digital advertising is significantly and adversely impacting traditional media and its ability to fund the development of content from advertising revenue. This is not necessarily a problem.

The objective and value of an inquiry, however, will be to examine the interrelationships between players in the industry in order to assess the impact of these platforms on the state of competition in media and advertising markets.

It would also take into account the impact on consumers in terms of the level of choice and quality of news and journalistic content available to them.

Information arising from an inquiry could help identify competition policy recommendations, or any breaches of competition law, particularly the amended Harper provisions.

3. Access to data

As a key competition issue, the Productivity Commission has recommended the introduction of a new Comprehensive Right for consumers and small and medium-sized businesses in relation to data.

On Sunday, the Government announced that it will legislate for such a right. We think this right will be a game changer for competition and consumers.

So far, the significance of this change has not been understood; this will change.

A right to data will enable consumers to request, access and use consumer data, including to direct that data be provided to a third party.

The way data is used within society is changing rapidly, and the ways in which businesses are collecting and using data derived from consumers are radically different to the practices of even ten years ago.

Business is obtaining a large benefit from this data; now consumers can.

We strongly welcome redressing the balance and giving more to consumers, and to spur competition by allowing consumers to contrast and compare market offers. Consumers can then determine what is best for them given their usage history; and they can take their data with them to a new provider.

The Productivity Commission was ahead of the game by calling for consumer empowerment in the use of data. The Productivity Commission has called for us to move from a system based on risk aversion and avoidance, to one based on transparency and confidence in data processes.[4] That is, to treat data as an asset rather than something personal that must be protected.

The Productivity Commission has described this as a new competition policy, driven by a right to use your data. It is essential that access to data, while underpinned by confidence in privacy, is considered through a competition and consumer lens.

The right would be inalienable; not able to be contracted out or sold. Importantly, the Productivity Commission review saw consumer data operating as a joint asset between the consumer and the entity holding the data. Both parties would have the opportunity to harness the dataset for their own purposes, and consumers may share their consumer data with third parties.

I believe this consumer right to their own data will save consumers huge amounts in many sectors and, importantly, also empower new competitors.

Exciting times indeed!

Thank you for your time today.

 

[1] Cas Mudde, "The populist zeitgeist." Government and opposition 39.4 (2004): 542–63 at p. 560.

[2] Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 (22 December 2014).

[3] https://www.accc.gov.au/media-release/accc-takes-action-against-murray-goulburn

[4] Productivity Commission, Data Availability and Use, page 2