Stopping Price Competition Will Hurt Consumers

The Business Council of Australia said today that any specific prohibition on competitive pricing by large business would directly affect consumers, denying them the benefits of robust price competition.

BCA Chief Executive, Ms Katie Lahey confirmed that the council would prefer to see the Dawson reforms to the Trade Practices Act dropped altogether, than accept changes to the Act that could prevent larger businesses from being able to fully compete with other firms.

“These sorts of changes have been repeatedly put before Senate and other inquiries and have repeatedly been rejected because they can potentially act as a restraint on pro-competitive conduct rather than prevent anti-competitive conduct,” she said.

During a Senate inquiry in 1999, then ACCC Chairman, Professor Allan Fels warned the inquiry of the dangers of changing section 46 of the Act, which prohibits misuse of market power and predatory pricing: “There are dangers in taking section 46 too far, because one always has the problem that it can deter genuinely pro-competitive behaviour.”

He went on to advise that changes to section 46 “could take the edge off the incentive for firms to compete keenly on price and other dimensions” and are also “likely to create greater uncertainty for business.”

Ms Lahey said BCA concerns over the negative impacts of prohibiting larger businesses from undertaking aggressive pricing have been reinforced by the findings of a Canadian Parliamentary committee into that country’s laws prohibiting predatory pricing.

Canada is one of the few countries to specifically prohibit predatory pricing as well as, like Australia, having a more general prohibition on misuse of market power.

The Canadian Parliamentary inquiry concluded that it can be “extremely difficult to distinguish predatory pricing from aggressive price competition”. It went on to find that this sort of provision “leads firms who have been unable to survive market competition into believing that they have a valid predatory pricing claim”.

Ms Lahey said that constraints on price competition would have the same negative effects in Australia.

“Proposals being put by some small business groups mean larger businesses would run the risk of having to prove their innocence in court whenever they engage in discount pricing that undercuts competitors,” she said.

“Other proposals would require companies to be able to predict the future effect of their activities on competitors.

“Small businesses are vital to the Australian economy and flourish, even in the face of competition from larger firms.

“But any proposal to restrict competitive pricing would simply result in Australian consumers paying higher prices to protect less competitive business.”