Small business has won a victory with a new proposal giving the competition watchdog more scope to act against major companies that use their market power to stifle competition.
The government’s competition review panel led by Professor Ian Harper today released its draft report backing the inclusion of a contentious “effects test” in section 46 of the Competition and Consumer Act.
The proposal lowers the threshold at which the Australian Competition and Consumer Commission (ACCC) can take action against major businesses on grounds they have misused their market power.
Instead of proving a business acted for the “purpose” of reducing competition, the proposed change means the ACCC need only prove the “effect” of the business’ behaviour was anti-competitive.
Peter Anderson, one of the four members of the competition review panel and former head of the Australian Chamber of Commerce and Industry, told Dynamic Business this proposal was a “substantive change to the law in respect of misuse of market power”.
“By moving to this new form of an effects test we have lowered the bar where there is a substantive complaint of misuse of market power,” he said.
“(Currently) the ACCC has to prove that the dominant party has not just market power, but that they are taking advantage of that market power for the purposes of damaging a competitor. The prosecutor has to prove the purpose of the dominant player.”
Mr Anderson said the proposed changes would seek to protect competition over individual competitors who felt hard done by sensible business decisions taken by their larger rivals. He also said there were key defences available under the proposed renovation of section 46.
“The defence is that if it is a rational business decision that would be made irrespective of whether you had dominant market power and, if it’s in the long term interests of consumers, then you will not be in breach,” he said. “That defence will knock on the head this argument that an effects test can chill competitive and pro-competitive business decisions”.
Big business has expressed concern about the unintended consequences of an effects test and whether it will crimp legitimate business decisions that impact a competitor’s profits.
Mr Anderson also said the changes would make it far easier and more effective to use section 46 than in the past where it has resulted in long and costly legal cases.
“It’s going to make it a little more likely that some of the concerns of small to medium sized business find their way to be tested in the courts than the current situation,” he said.
“It will be easier in the sense that what has to be shown to exist by the regulator is more straightforward and what then has to be responded to by the powerful company is much clearer… At the moment the ACCC is subject to the over-riding principle that it should not take action in the courts unless there is a reasonable prospect of success.”
Mr Anderson said the law had a broad application across a range of sectors, although he acknowledged it would have relevance for the larger supermarkets and in the telecommunications sector.
Master Grocers Australia chief Jos de Bruin welcomed the recommendation, saying it would better equip the ACCC. He said that the behaviour of Coles and Woolworths often distorted local markets and crowded out other retailers, but it was very hard to prove this was their purpose.
“If you were to try and prove that was their intention, you won’t be able to unless there was something written nicely for you in an interview or there is a whistleblower,” he told Dynamic Business. “The only way you can prove there is a lessening of competition because of certain behaviours is to have an effects test.”
“This is really going to say to Coles and Woolies, before you act you’re going to have to think about what you’re doing because there’s an effects test.”
Chief executive of the Council of Small Business of Australia, Peter Strong, said he was concerned by the big end of town coming out “all guns blazing” on the inclusion of an effects test.
Mr Strong described the inclusion of an effects test as “essential” and said the arguments against it were overblown. He said there were 400,000 small businesses that suffered in Australia because there was no effects test and would be “very disappointed” if it was not included in the final report due by March next year.
“You think Coles and Woolies would close down if there would be an effects test,” he said. “It just becomes part of what the ACCC can use. We all know that Coles and Woolies can screw people over and we need to give the regulator the capacity manage it.”
Submissions on the draft report will be accepted until November 17.
