REPAIRING AUSTRALIA’S COMPETITION LAWS

Misuse of Market Power – Section 46.

“It defies belief that there has been only one instance since 1990 where big business has used its market power to harm competition. If Section 46 does not work then one of the most important protections of competition is missing from the Australian economy”

Allan Fels, Former Chairman of the ACCC[1]

“Realistically, section 46 market abuse causes were ‘very, very difficult’ to successfully litigate, with the commission only successful in one case in some 30 years”.

Graham Samuels, Current Chairman of the ACCC[2]

Even the Global Competition Review, a London based organization has identified the weakness of section 46 and criticized Australia’ s performance having, “lost ground for the abuse of dominance and willingness to litigate……abuse [of market power] is the area where Australia lags behind.

For anyone left believing that section 46 works, they should perhaps study the opinion of Justice French in Natwest Australia Bank v Boral Gerrard Strapping Systems Pty Ltd (1992) ATPR 41-196

“If a corporation with a substantial degree of market power were to engage an arsonist to burn down a competitors factory and thus deter or prevent its competitors from engaging in competitive activity, it would not contravene s 46”

Australia’s Laws to prevent ‘Misuse of Market Power’ under section 46 of the Trade Practices Act are clearly broken beyond repair, tinkering around the edges is not the answer.

To bring Australia’s competition Law up to International Best Practice, Australia needs to adopt ‘lock, stock and barrel’, the English Competition Law “Abuse of a Dominant Position” under Chapter 41 of the UK Competition Act 1998. 

Effects on the Retail Industry 

For the retail industry, these laws would protect a retailer’s goodwill and prevent it from being stolen by landlords with dominant market positions, by unfair rent increases.

Currently at the end of a lease, a landlord can present to a small retailer a renewal ultimatum: “pay a greatly increased rent or vacate the premises”

Even if the increase is completely unfair, such as a 20,30,50 even 70% increase,  its just bad luck for a small retailer. Although this is clear misuse of market power, Australia’s current competition laws offer no protection from such abuse. Price gouging, by a firm with a dominant market position is allowed under Australia’s Trade Practices Act.

Therefore the retailer either pays the unfair increase, or they lose their goodwill, lose their business, and lose their source of income supporting their family. 

Effects on Consumers

By failing to protect small business, Section 46 also fails to protect consumers.

Left with little choice, the small retailers pays the increase in rents, and then has no option but to pass these increased costs onto consumers. This is why rents in Australia are 125% higher than other countries and why Australian Consumers pay higher prices for goods. 

The Effects on Arsonists

As Justice French correctly pointed out - to engage an arsonist to burn down a competitor’s factory to destroy competition, would not contravene the current section 46. 

However under the “Abuse of a Dominant Position” law, engaging an arsonist to burn down a competitors factory, would contravene clause (B) as a dominate firm is prevented from “Limiting production or technical development” of a competitor, which would include burning down their factory.

Although this may be a ridiculous example – it’s an example of just how ridiculous our current Trade Practices Act is, and why it needs urgent reform.

Weak Competition Laws Push Inflation & Interest Rates Higher

Unless the Trade Practices Act is repaired to prevent price gouging by firms with dominant market positions - inflation will increase and interest rates will be pushed higher – every consumer in the country shall be worse off.

With the introduction of a law, such as such Chapter 41 of the UK Competition Act 1998 “misuse of market power” is redefined as an “abuse of a dominant position”.

As these laws clearly prohibit abuse by “directly or indirectly imposing unfair purchase or selling prices” - For landlords with a dominant position, imposing an unfair substantial increase in rents, when a retailer has little choice but to accept, is abuse of their dominant position and is prohibited. 

With these laws, Landlords conduct of imposing massive rents hikes on small retailers would be outlawed.

These laws will prevent consumers and small business from being exploited, they will keep prices down, and will help keep inflation lower, and therefore will also help to prevent interest rates from rising. Although companies with dominant positions may not be able to continue to increase profits as fast as they have in the past, as price gouging by a dominant firm would now be illegal. 

Expected Protests.

The owners of Australia’s shopping centres through their propaganda arm the notorious Shopping Centre Council will no doubt, led the howls of protest arm in arm with the Business Council of Australia on behalf of all privileged large corporations seeking to protect their dominant positions and to ensure there is no change to section 46 of the Trade Practices Act.

As they have in past, they will attempt to confuse and outwit governments to retain the status quo where a handful of executives are able to skim off much of the nations wealth. 

However their arguments against the introduction of “Abuse of a Dominant Position” laws in Australia will be entirely aimed to allow them to continue to abuse their dominance, by exploiting small business and consumers, for their own private gain and to the detriment of the nation.

[1]Australian Consumer and Competition Commission, http://www.accc.gov.au/content/index.phtml/itemId/347733/fromItemId/623367

[2]Australian Financial Review 1^st Aug 2006