Fels calls for tougher laws
Twenty years after the toughening of the competition test for mergers, 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 mark 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 abuse their power.
His suggestions come as the Australian Competition and Consumer Commission investigates whether the big two supermarkets, Woolworths and Coles, are misusing their market power to exploit suppliers. Banks have also come under scrutiny over their failure to pass on interest rate cuts.
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 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.
Professor Fels said it was time for more change. For instance, when a large retailer acquired a small shop in a country 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.
In the case of section 46 abuse of market power cases, Australia had opted for a requirement to prove that the actions were for the purpose of abusing that power.
"The US and the European Union have an effects test and it is much better to focus on the economic outcome of the act," Professor Fels said. "Our system induces a cops-and-robbers mentality, where regulators are focused on finding emails and the like to prove the purpose."
A change in the test would be significant for the supermarket suppliers who allege 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.
"It would add much more clout to the act if companies knew there was a prospect of divestiture," Professor Fels said.