Fels calls for tougher laws
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.
Frequently Asked Questions about this Article…
Allan Fels is the architect of the tougher merger test introduced in 1993 and a former chair of the Trade Practices Commission and the ACCC. In the article he calls for stronger competition laws to deter anti‑competitive behaviour by large companies, including clearer rules on creeping acquisitions, more effective abuse‑of‑market‑power laws, and powers to seek court-ordered divestiture where abuse is proven.
Professor Fels helped convince government in 1993 to allow mergers to be blocked if they were likely to substantially lessen competition rather than only when a firm would dominate the market. He now wants further reform because the current test can miss local or incremental “creeping” acquisitions that harm competition in a town or niche market.
'Creeping acquisitions' are a series of small purchases by a large retailer or company that cumulatively weaken competition—for example, a big retailer buying a small shop in a country town. These moves may not trigger the current substantial‑lessening test but can have real effects on local suppliers, prices and market diversity, which everyday investors should monitor in affected sectors.
Australia’s section 46 requires proof that a company acted for the purpose of abusing market power, meaning regulators often have to demonstrate intent. The US and EU use an effects test that focuses on the economic outcome of behaviour. Professor Fels argues the effects test is preferable because it targets actual harm rather than searching for evidence of intent.
Divestiture is a court‑ordered sale of assets or businesses to restore competition. Professor Fels proposes adding divestiture to the range of penalties available where a court has established abuse of market power, saying the prospect of forced sell‑offs would give competition law more clout and deter anti‑competitive conduct.
Yes. The article notes the ACCC is investigating whether the two big supermarkets, Woolworths and Coles, are misusing their market power to exploit suppliers. Suppliers have alleged the big two use their position to push down prices for commodities such as milk.
Banks are mentioned as having come under scrutiny for failing to pass on interest rate cuts to customers. Professor Fels’ wider call for tougher abuse‑of‑market‑power laws suggests such behaviour could be more effectively addressed if the law focused on economic effects rather than proving intent.
Investors should watch for policy announcements or legal changes around the merger test, section 46 (abuse of market power), and any new divestiture powers. Tighter laws could affect valuations and competitive dynamics in sectors like supermarkets, hardware, airlines and banking, and may lead to more ACCC intervention in deals or conduct that harm competition.
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