1 September 2015

AFR article: Effective competition laws boost growth, trade and investment

Opinion piece which appeared in the Australian Financial Review (AFR) on 1 September 2015

The recommendations of the Government’s Competition Policy Review Final Report will promote more dynamic, competitive and well-functioning markets and provide a detailed and ambitious blueprint for a new wave of economic reform.

Effective competition is one of the surest ways to raise productivity and grow our economy, ultimately contributing to higher living standards and better outcomes for consumers.

Amongst its 56 recommendations, the independent and expert Harper Review Panel has made a strong case for reforming the Competition and Consumer Act 2010 (CCA) to ensure we have modern, clear and effective competition laws.

This includes amending the current misuse of market power provision (section 46) to prohibit a corporation with substantial market power from engaging in conduct that substantially lessens competition.

The current misuse of market power provision is not reliably enforceable and permits conduct that undermines the competitive process.

An effective misuse of market power provision is an important part of competition law, particularly in Australia where our small and geographically dispersed economy frequently leads to concentrated markets. It is therefore imperative that any misuse of market power provision strike the right balance between encouraging pro-competitive behaviour and capturing anti-competitive conduct.

The proposed Harper Review amendment to section 46 strikes the right balance and has the potential to better foster innovation and efficiency, improve productivity and ultimately deliver economic, employment and consumer benefits.

The Harper proposal has been carefully designed and will not dampen domestic or foreign investment, or deter the entry of new sources of competition into Australian markets. Quite the contrary actually.

This is an opportunity to more closely align the misuse of market power provision with comparable overseas jurisdictions, including the EU, UK and Canada, thereby reducing uncertainty for foreign companies seeking to operate here and for Australian firms pursuing opportunities in these advanced overseas markets.

An effective misuse of market power provision will lead to decreasing barriers to entry and so encourage investment by local and international businesses in the Australian economy.

It is the ineffectiveness of the current provision in stopping exclusionary and predatory behaviour by incumbents trying to fortify their position that discourages innovative firms (domestic and foreign) entering Australian markets and competing to delight Australian consumers, thereby detracting from Australia’s future productivity growth and wealth.

History and international experience show that an effective misuse of market power provision allows innovative firms to enter new markets and spread the benefits of disruptive technologies, new offerings and business models.

For example, cases in the USA and EU (in the early to mid-2000s) stopped Microsoft from forcing Windows users to install other Microsoft products – including forcing users to install Internet Explorer and Windows Media Player while excluding alternative products.

Under the current Australian law, Microsoft’s conduct would be unlikely to satisfy the ‘take advantage’ element necessary to be found unlawful, because bundling of these products is also practised by smaller firms without market power.

It is now clear that the enforcement action taken in the US and EU under their laws against the ‘exclusionary conduct’ of Microsoft a decade ago created opportunities for new market entrants like Google’s Chrome browser, Apple’s Safari browser and iTunes, YouTube, Adobe Flash, Skype and providers of web-based mail such as Google and Yahoo.

It is this process of innovation and competitive markets that drives economic growth and improvements in living standards in the longer term.

It is very important to be able to distinguish between aggressive (but fair) competition from a misuse of market power and it has become clear over time that the current law does now draw this distinction effectively.

The cases of Rural Press Limited and Cement Australia both exemplify the narrow interpretation of ’take advantage’ that has been taken by the courts with the current law.

In both cases the conduct of a firm with substantial market power, despite being found by the Court to have been engaged in for a substantial anti-competitive purpose and having the effect of substantially lessening competition, was not found to constitute ‘taking advantage’ of the firms’ market power.

The proposed amendments recommended by the Harper Review Panel better distinguish pro-competitive conduct from anti-competitive conduct.

The recommended changes to the misuse of market power law will ultimately increase certainty in the way the misuse of market power law operates as it would be aligned with other sections of our competition law and thereby relies on long-established and well-understood concepts.

Should the Government choose to implement Harper recommendation to reform the misuse of market power law, the transition would be supported by the ACCC issuing guidelines regarding its approach to the new provision. Companies will be given a new facility to apply to the ACCC for authorisation of conduct that may otherwise be in breach of the new section 46 but which is in the public interest.

The new misuse of market power provision proposed by the Harper Panel utilises the known and well understood ‘substantial lessening of competition’ test, which helps to minimise any transition costs and uncertainty. It would form part of a broader package of reforms that will result in an overall net reduction in business compliance costs.

Being ‘open for business’ means getting the policy settings right to encourage innovators, investors, creative and courageous business people, disruptors and visionary people of enterprise – not just for the established incumbents.

It means not impeding new entrants and entrepreneurs offering new products and services as they compete to delight Australian businesses and consumers.

Robust and healthy competition boosts productivity, growth, living standards and durable benefits for consumers.

And effective competition laws are central to my goal to ‘energise enterprise’ and a key element of the Abbott Government’s new wave of economic reform that will boost growth, prosperity trade and investment, and the increase in jobs and opportunity that will result.