Fels calls for tougher laws on mergers

Twenty years after the competition test that governs mergers was toughened, the architect of the changes, Professor Allan Fels, has called for more action to deter anti-competitive behaviour by large companies.

Speaking at an event in Sydney to recall the 20 years of the merger test, Professor Fels said Parliament should consider tougher laws to deal with creeping acquisitions.

He also wants more effective laws on abuse of market power by large companies and powers to seek court orders for divestiture when they are proved to have abused their power.

His suggestions come as the Australian Competition & Consumer Commission undertakes a major investigation into whether the big two supermarkets, Woolworths and Coles, are misusing their market power to exploit suppliers. As chairman of the Trade Practices Commission and later the ACCC, Professor Fels was instrumental in convincing the government in 1993 to change the law so that mergers could be blocked if they were likely to lead to a substantial lessening of competition.

Before that, mergers were blocked only if a company would dominate the market.

The change, fiercely opposed by business, gave the ACCC teeth to block several mergers, though it has still allowed powerful duopolies to develop in supermarkets, hardware, airlines and packaging.

Now Professor Fels says it's time for more changes. For instance, when a large retailer buys a small shop in a town, the effect might be profound in the town, but would not fall foul of the current test which requires a substantial lessening of competition.

"It would be useful if the law more explicitly addressed creeping acquisitions," he said.

Under s46 of the Trade Practices Act, there is a requirement to prove that the company's actions were for the purpose of abusing their market power.

"Our system induces a cops and robbers mentality, where regulators are focused on finding emails and the like to prove the purpose," he said.

A change in the test would be significant for the supermarket suppliers who are alleging that the big two use their power to drive down prices of commodities such as milk. He also wants divestiture added to the armoury of penalties, though the penalty should be available only where a court has established abuse of market power.