The ACCC is sending out mixed signals on competition

In attempting to broaden the scope of what it calls 'anti-competitive' activity, Rod Sims could end up killing the very competition that is good for the market, the economy, and ultimately consumers.

It is hardly going to come as a shock to anyone in business that, in its submission to the Harper Review of competition policy, the Australian Competition and Consumer Commission is seeking changes to the law that would expand its powers. Regulators are always seeking to expand their reach and influence.

ACCC chairman Rod Sims had in any case strongly flagged the commission’s agenda, including its desired changes to competition laws. Indeed, earlier this week he gave a speech that previewed the commission’s submission.

While it is wide-ranging -- it covers issues like privatisation policies, road and congestion pricing, water rights, land usage, shipping and intellectual property -- there are two pleas for reform of the Competition and Consumer Act that will make large businesses nervous.

One, as discussed earlier this week (A cold chill to kill competition, June 23) is the commission’s long-running campaign to have Section 46 of the Act, which deals with misuse of market power, amended. The other is an extension of the anti-signalling laws that now apply exclusively to banks across the economy.

The commission, as expected, wants to introduce an "effects" test to Section 46, which at present states that a company with a substantial degree of power in a market cannot take advantage of that power for the purpose of eliminating or substantially damaging a competitor or preventing the entry of a competitor into a market.

The ACCC wants to alter the section from one where an intent to damage a competitor has to be established to one where the effect of the actions, whether there was deliberate intent or not, is the test of whether an offence has occurred.

Its submission actually goes a bit further than that because of a perceived difficulty in establishing whether or not a company with substantial market power (and the concentrated nature of most sectors of our economy means there are a lot of companies with substantial market power) has "taken advantage" of that power.

One reformulation of the section would see it added to by saying that a company with substantial market power in a market cannot engage in conduct that has the purpose, or is likely to have, the effect of substantially lessening competition in that or any other market.

In other words there would be both an effects test added and potentially add a far broader net to the section’s coverage. Instead of having to demonstrate that a competitor or potential competitor had been damaged purposefully, it would be sufficient to either cite the effect of any action by a company with substantial market power on either a particular competitor or the market generally.

As has been said many times over many years, competition does damage competitors, sometimes terminally. The desire to compete and grow and innovate also has the potential to impact the competitive structure of markets. As we’ve witnessed in a number of major markets, disruption from technologies or innovation or superior management or strategies also reshapes markets and their competitive orders.

Making vigorous competition from the strongest competitors illegal, or at least making those competitors wary of competing too vigorously in case they fall foul of the law, is not going to benefit the intensity of competition, or consumers or the broader economy.

The ACCC wants anti-signalling laws that now apply only to banks extended across the entire economy. The laws prohibit the private disclosure of pricing information to a competitor, other than in the ordinary course of business and the private and public disclosure of information relating to price, capacity or commercial strategy for the purpose of lessening competition in a market.

Given that there are a raft of laws applying to arrangements or understandings that would apply to cartel-type behaviour or which is designed, or is likely to have the effect, of substantially lessening competition in a market, it has never been clear why the bank-specific prohibitions were introduced -- other than that, at the time, Wayne Swan was beating up on the major banks.

Sims put the issue of widening the coverage of the laws back on the agenda in March, using statements made by the various players in the domestic airline capacity wars to argue that the laws needed to be extended across the entire economy.

The banks, airlines and other players in concentrated sectors don’t need to signal each other. They know each other’s businesses and strategies intimately. The losers from the restrictions imposed on the banks are their shareholders and the community-at-large, who aren’t allowed to hear them discuss what they think might happen to mortgage rates, for instance.

If Qantas or Virgin were prevented from discussing their plans for increasing or decreasing capacity, or to explain why they are pursuing strategies under which they lose heavily in the short term to pursue or protect their longterm positions or aspirations, we’d all have a poorer understanding of what’s happening within a vital industry.

There is no issue with the ACCC acting to prevent collusion that damages consumer and economic interests, but introducing economy-wide laws that stifle/censor public discussion of matters of significant public interest and that conflict with companies’ obligation to keep markets informed could be regarded as regulatory over-reach.

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