By Jill Walker and Roger Featherston, ACCC Commissioners
Contrary to the assertion by Graeme Samuel and Stephen King that the ACCC is aiming “at constraining big business from legitimate competition” (AFR, 12 August), the amendments to section 46 suggested by the ACCC would protect such competition and only target conduct that is anti-competitive. Conduct that enhances competition, by definition, will not substantially lessen competition.
A prohibition on corporations with substantial market power engaging in conduct that has the purpose or effect of substantially lessening competition would draw on established jurisprudence and competition policy. Indeed, it has effectively been trialled in telecommunications markets since 1997 without the sky having fallen in.
Recent contributions to the public debate on whether to amend the misuse of market power provision (section 46) of the Competition and Consumer Act 2010, have suggested that a competition test would be novel, would chill pro-competitive conduct by big business, and would protect individual competitors instead of the competitive process. These suggestions are incorrect.
Jurisprudence in Australia has confirmed consistently that the substantial lessening of competition test is concerned with the process of competition and not with the effect on individual competitors. As Samuel and King pointed out, the courts have recognised that competition, by its very nature, is deliberate and ruthless, and so their examples of conduct (such as a corporation gaining an advantage through R&D and innovation, or as a result of economies of scale) would not be regarded by the ACCC or the courts as a lessening of competition, even if the conduct caused competitors harm or forced them to exit the market.
This issue highlights an inconsistency in the current section 46 which has long been recognised. Unlike the competition tests in other sections, section 46 focusses on conduct that has the purpose of damaging a competitor or deterring a competitor from engaging in competitive conduct, rather than focussing on the process of competition or competition more generally in the market. Ironically, Samuel and King appear to wish to retain this inconsistency instead of considering an alternative that is more consistent with their stated concern of focussing on the competitive process and not on individual competitors.
International comparisons are fraught with difficulty, but it is worth noting that the US Federal Trade Commission, in its submission to the Harper review, describes the US monopolisation test as a combination of substantial market power and substantial lessening of competition. Europe has abuse of dominance provisions which focus on the anti-competitive effect of conduct by firms in a position of dominance. These are more similar to the amendments that the ACCC is suggesting than to the existing prohibition in section 46.
In addition, the ACCC is seeking to address the difficulties inherent in the current requirement that a corporation must “take advantage” of its substantial market power. With the focus of the current test on individual competitors, these words have been required to do the ‘heavy lifting’ in section 46, attempting to distinguish what is anti-competitive from what is pro-competitive. Interpretation of these words has been tortuous, involving convoluted counterfactual worlds lacking substantial market power, disembodied from a proper consideration of the competitive impact of the conduct. The ACCC is suggesting that (as in Europe) if a corporation with substantial market power acts anti-competitively, that should be enough, provided that it constitutes a “substantial lessening of competition”. With this as the threshold competition test, the words “taking advantage” become redundant.
This would simplify the Act and focus the analysis of the purpose or effect of the conduct on the process of competition in the market.
The substantial lessening of competition test is an established test in the Act and, contrary to the claim by Samuel and King, is applied to general forms of conduct. Samuel and King claimed that every other section of the Act prohibits a specific form of conduct if it is likely to substantially lessen competition, but that overlooks section 45, which prohibits any contract, arrangement or understanding, and section 50, which prohibits any acquisition of shares or assets, where the agreement or acquisition substantially lessens competition in a market. Corporations have coped with those general prohibitions for decades, and so they will cope with a similar test in section 46. Indeed, it is instructive to note that in both Rural Press and Cement Australia, while the courts struggled with the interpretation and application of section 46, the conduct was found to substantially lessen competition in breach of section 45.
Let’s have a debate, but let the debate be based on our current Act and how it might sensibly be improved, and any examples should be appropriate to illustrate issues rather than simply as scaremongering.
This opinion piece was published in the Australian Financial Review on 14 August 2014.