Media & Speeches

Harper competition recommendation too broad, will deter rivalry

This opinion article by Gilbert + Tobin Managing Partner and Chair of the Business Council of Australia's Ease of Doing Business Committee Danny Gilbert was published in The Australian 5 October 2016.

All competition laws should be well drafted, but those addressing the misuse of market power matter more than most.  Following the Government’s decision to implement the recommendations of the Harper Review, more needs to be done to get the drafting right.

Get the words right and businesses of all sizes will compete vigorously on merit to improve product delivery and lower prices.

Get the words wrong and many businesses may well baulk at engaging in vigorous competition. 

Nobody would disagree with Harper’s position that the law should effectively target anti-competitive conduct.  But what Harper has recommended is too broad.  It would capture a wide range of business conduct and threaten the cut and thrust of competition that benefits consumers. 

The fear will be that ordinary competitive behaviour may trigger a misuse of market power complaint and court action by the ACCC or an aggrieved competitor.  This deterrent will be harmful to innovation, economic growth and the consumer. 

The current law allows a business with market power to compete as hard as it can, as long as it doesn’t take advantage of that market power for an improper purpose – internationally referred to as misuse of market power.

Critics of the current law, including the ACCC, the Harper Review panel and small business, say that it presents obstacles to the proper regulation of anti-competitive behaviour by companies with market power.  Many critics say that, as a result, large companies are too free to engage in conduct that damages smaller market participants.

These concerns led the Harper Review to propose a new set of words which now appear in the Government’s draft legislation.  However, we now have a proposal that will present many problems for any corporation that may be seen to have market power, regardless of its size. 

The proposed law will prohibit a firm with market power from engaging in any conduct that has the purpose, effect or likely effect of substantially lessening competition.  It does not require a misuse of market power, making its potential application extremely broad. 

The problem is not that this is an “effects” test.  The problem is that any form of conduct can be seen to have the purpose or effect of lessening competition – perhaps in another market, or at some future time – even if it has the immediate purpose and effect of lowering prices and benefiting consumers. 

If implemented, the proposed law will apply to a very large number of companies engaged in ordinary competitive behaviour.  There is a real risk that it will protect less efficient competitors from the full force of competition.  The uncertainty of the proposal is likely to deter the very competition that the law is supposed to encourage, and any dampening of competition will be to the detriment of consumers and the price they pay for goods and services. 

The Harper Report and the Government’s draft legislation try to address these problems by listing a number of mandatory factors that a court must take into account in determining whether conduct has the purpose or effect of lessening competition.  The ACCC itself has argued that these court factors are unworkable and add nothing.  The new section provides very little protection for innovation, efficiency or legitimate business conduct.

Problems with the proposed amendments have been raised by former ACCC Chairs and Commissioners Graeme Samuel, Stephen King and Bob Baxt, senior competition law barristers and academics, the Law Council of Australia and the Business Council of Australia.  More recently the Productivity Commission has cast doubt on benefits of the changes.  A number of improvements to the Harper recommendation have been proposed, but they have been ignored.

Thankfully a solution is to be found in the draft guidelines prepared by the ACCC.  The ACCC says that a misuse of market power law should prohibit exclusionary conduct, that is, conduct that interferes with the competitive process by preventing or deterring rivals or potential rivals from competing on their merits.  The guidelines also suggest that conduct that has a legitimate commercial or business reason will often be allowed.  Unfortunately, these sensible concepts are not sufficiently reflected in the draft provision, and they should be.

Explicitly focusing the law on exclusionary conduct, and protecting conduct undertaken for legitimate business reasons, would be a simple change that would align the new law with the ACCC’s guidance and provide the clarity that is needed.  It would be consistent with the intent of the Harper Review and would retain all of the core elements of the Government’s policy to strengthen the misuse of market power provision.  It would more closely align the new provision with similar laws in other developed economies.

Most importantly, it would create an effective provision while also addressing legitimate concerns that the proposed draft legislation overreaches, creates uncertainty and risks deterring competitive conduct that is in the interests of consumers.

Words matter, and in misuse of market power provisions they matter a great deal.  It’s not too late to redraft the law to provide the certainty and precision it needs. The proposal must be critically evaluated to ensure that it focuses on exclusionary conduct and protects legitimate business conduct – as Harper and the ACCC have said it should.  It is surely possible to meet the legitimate concerns of the many who are interested in an outcome that promotes competition and the interests of consumers.