RICHARD AEDY:
Let's start with competition. For consumers, here isn't enough of it. In 17 industries, we have more market concentration than America does. And in a few it's very, very obvious. Four big banks, two big supermarkets, two big airlines. Part of the reason for this is mergers and the way that they've been regulated. The Government wants to change that and has just put out a consultation paper. The Minister for Competition is Andrew Leigh. Minister, thanks for joining us. What is wrong with our merger control regime at the moment?
ANDREW LEIGH:
Richard, we've seen a big increase in market concentration and a big increase in markups. We've had the lousiest decade of productivity growth in the postwar era, and many people think that that might be because our markets aren't dynamic enough. Pretty much wherever you turn, from banking to baby food to beer, Australian consumers only have a couple of choices. And in that environment where large firms are ruling the roost, I think it's important for us to take a careful look at our merger laws.
AEDY:
The ACCC says that it's all skewed towards, I suppose, signing off on mergers. That's part of it, isn't it?
LEIGH:
That's their concern, and they've raised this repeatedly with governments. The former government dismissed them. We're taking these concerns seriously. And so this is an open merger consultation being conducted by a government with an open mind as to the right way of going forward. But in an environment in which it's clear that the volume of mergers has quintupled since the early 1990s, we've seen a change in the way in which competition regulators around the world think about mergers. If you look at the United States or the European Union or the UK, they've all had recent reviews of their merger laws. So, in some sense, Richard, it would be surprising if Australia didn't take another careful look at our merger laws and make sure we're getting them right.
AEDY:
Right. It sounds like you're open minded, but you’re determined that there must be some change. The consultation paper highlights some types of acquisitions by large firms that aren't currently captured by competition laws. One of these is this sort of creeping or serial acquisition. Can you talk us through what those are?
LEIGH:
That's right. And we're not talking about Weet‑Bix here. We're talking about serial acquisitions of a different kind, those in which a company puts together an agglomeration of smaller firms and ultimately entrenches significant market power. This has been alleged to be an issue around some of the big tech firms. At tech conferences, people now talk about a so called 'kill zone' around the large tech firms in which competitors are either quashed or acquired and in which it's difficult to take on the large incumbents. So, we believe it's important to have a careful look to ensure that you don't get suddenly, a stage where you wake up and you discover that a firm has gone from having modest market power to completely dominating the market.
AEDY:
Another one that's sort of related to that is acquisitions of what's called nascent competitors. So, I guess newbies by large incumbents?
LEIGH:
That's right. We've seen an environment in which too often young startup firms will say that their aspiration is to be acquired, rather than to take on the incumbents. In some cases, that can be good for the startup entrepreneur, but it's not necessarily good for the consumer, who really benefits when you get much more choice. If you compare Australian markets to other countries around the world, in a number of sectors, we're very concentrated. Our supermarket sector, our banking sector, for example, are more concentrated than average. And that means that consumers may not get the best possible deal. Another emerging strand of literature, Richard, suggests that uncompetitive markets might not just hurt consumers, but they might hurt workers too. Just as consumers pay more when there's only a couple of firms selling the good, workers can earn less when there's only a couple of firms willing to hire their services.
AEDY:
Well, your consultation paper highlights some possible changes, and I want to walk through the three most important bits to it. The first is notification. So, how or when whoever is deciding if a merger can go ahead will go ahead. What are the issues here?
LEIGH:
If you're a large multinational and you're embarking on a merger, then typically what you'll do is you look around the world and you'll ask the question, ‘what are the jurisdictions where we have to notify?’ Most advanced countries come up on that list, but Australia doesn't. So, our competition regulator often just doesn't find out about a big merger that a multinational is putting in place. It seems strange to me that we would leave ourselves on that list. So, looking at compulsory notification is something that the ACCC has been pushing a long time, and that's why Jim Chalmers and I have asked the Competition Taskforce to look into it.
AEDY:
There's also the critical process of assessing the merger, again, I suppose some of the issues here are going to be who gets to decide?
LEIGH:
That's right, and right now there's a fairly complicated process. We would like to look at whether that might be simplified to ensure that things are more efficient for firms, but also making sure that we've got the proper scrutiny at the right stage, that the right information is provided. Because when merging parties are getting together, issues can be very complicated and it’s important to ensure the ACCC gets the information that it needs in a timely fashion.
AEDY:
It's quite technical, some of this. It's sort of whether the ACCCC or the Federal Court is the primary decider, whether the default is to permit the merger or to block it where there's uncertainty whether things like public benefits, which are kind of hard to assess, should be considered.
LEIGH:
That's right, Richard, I'm not sure of the value of going in too much into the weeds of these things. When you look at the big picture, we're looking at whether mergers should be easier or more difficult than they have been in the past. And we're putting in place that scrutiny in the context of a Competition Taskforce, which is aiming to deal with a cost‑of‑living crisis and a productivity slump at the same time, in an environment in which we know that competition reform has been really important to driving productivity. So, the Hilmer competition reforms in the 1990s delivered about $5,000 a year into the pockets of the typical Australian household. That's what good competition reform can do.
AEDY:
All right, well, I just want to come back to what's being considered the final part of this is enforcement. What needs to be sorted out here?
LEIGH:
Well, in this case, we need to make sure that we get the settings right. We're also interested in how you follow through to ensure that merger claims have been sustained. As with any process, you need to make sure that afterwards you go and check whether the promises that were made have been followed through on. So‑called post‑merger reviews have been relatively rare in Australia. If we're going to improve the system, we need to have a good feedback loop.
AEDY:
Now, you present three options for dealing with all of this, and the ACCC favours one in which there's a mandatory formal clearance regime with compulsory notification of mergers above a threshold and the ability to call in transactions below that. where there are competition concerns. There's two others as well. Broadly, do you favour one Minister?
LEIGH:
Richard we're conducting this consultation because we want to hear people's views and it would be a mistake of me to say, ‘well, here's my favourite’. At this stage, we're really engaging in an open consultation and it's appropriate for firms and for individuals to come forward with their various views on this. Merger reform has a long history. You go back to the period in the 1990s where the test was dominance rather than substantial lessening of competition. And in the view of somebody like Allan Fels, there were mergers that went through under that dominance test that wouldn't have gone through under the tougher test that followed it. Coles‑Myer being the most high-profile example of those.
AEDY:
All right, what happens now?
LEIGH:
The consultation is open. We're looking forward to hearing people's views. And at the same time, the Competition Taskforce is working on a host of other issues. They're looking at airline competition, they're looking at so-called non-compete clauses that make it harder for workers to move to a better paying job. They're looking carefully at ways in which we can engage with states and territories, because so much of competition reform requires working with the states and territories. In all of this, we need to get that balance right so we get a more competitive and more dynamic economy. We're a country that loves our sporting competitions, Richard, and in a typical sporting contest, you can choose from at least a dozen teams. Wouldn't it be lovely if in the product market, you could choose from a dozen firms in any market you go into?
AEDY:
It would be alright. Well, we'll keep an eye on this. I think the submissions close in January, so we might see some actual changes by the end of next year.
LEIGH:
We could well Richard.
AEDY:
Thanks for joining me Minister.
LEIGH:
Real pleasure.