Fels calls for tougher laws on mergers

Q: What role has the ACCC played since the tougher competition test was introduced?

Since the 1993 change the ACCC has used the substantial lessening of competition test to block several mergers, but powerful duopolies have still emerged in sectors like supermarkets, hardware, airlines and packaging. The ACCC is also conducting a major investigation into whether the big two supermarkets are misusing market power.

By InvestSMART · 7 Mar 2013

By InvestSMART ·
7 Mar 2013

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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.

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Frequently Asked Questions about this Article…

What merger law changes has Professor Allan Fels called for to curb anti-competitive behaviour?

Professor Allan Fels has urged tougher merger and competition laws, including clearer rules to address "creeping acquisitions", stronger legal tools to tackle abuse of market power by large companies, and court powers to order divestiture where abuse is proven.

What was the 1993 change to the competition test and why does it matter to investors?

In 1993 the law was changed so mergers could be blocked if they were likely to lead to a "substantial lessening of competition" rather than only if a firm would dominate the market. That shift gave the ACCC more power to block deals and affects how mergers are assessed for their potential impact on competition and investor value.

How could tougher merger and competition laws affect supermarkets like Woolworths and Coles?

Fels' proposals come as the ACCC investigates whether Woolworths and Coles misuse market power to exploit suppliers. Tougher laws, clearer tests for creeping acquisitions and divestiture powers could make it easier to remedy anti-competitive conduct in supermarket supply chains.

What are "creeping acquisitions" and why should everyday investors care?

Creeping acquisitions are small, incremental purchases (for example a large retailer buying many small local shops) that cumulatively harm local competition but may not trigger the current test for a substantial lessening of competition. For investors, these can quietly change market structure, competitive dynamics and long‑term returns.

What is section 46 of the Trade Practices Act and what change did Fels highlight?

Section 46 requires regulators to prove a firm acted for the purpose of abusing market power. Fels says this forces a narrow "cops and robbers" approach—searching for emails or direct proof of intent—and he argues the test should be rethought to more effectively deter abuse.

What is divestiture and when did Fels say it should be used?

Divestiture is a court-ordered sale of assets to restore competition. Fels wants divestiture added to the range of penalties but only available where a court has established that a company abused its market power.

How could proposed legal changes help supermarket suppliers alleging unfair treatment?

A change to the competition test and stronger remedies could make it easier for suppliers to challenge behaviour by the big two that allegedly drives down prices for commodities such as milk, and could lead to court-ordered remedies if abuse is proven.

What role has the ACCC played since the tougher competition test was introduced?

Since the 1993 change the ACCC has used the "substantial lessening of competition" test to block several mergers, but powerful duopolies have still emerged in sectors like supermarkets, hardware, airlines and packaging. The ACCC is also conducting a major investigation into whether the big two supermarkets are misusing market power.