The effects test is officially, definitely coming. The exact effect date is TBC, but we'd say it will be in the next 6 months.

Businesses with a strong market position should get on the front foot because a lot of behaviour that was legal before, will be illegal now. And nobody wants to be that test case.

We wrote about the practical impact of the effects test when it was first taken to parliament. The example we used was Coles' and Woolies' $1 milk pricing strategy. Under the new laws, if either had market power, then $1 milk would likely be illegal because of its impact on competition.

So then, what should Coles, Woolies, or any big business, do?

  • First, assess whether you have market power. Before, you could pretty much ignore this analysis so long as you didn't act with a prohibited purpose (e.g. toasting your competitor like a marshmallow on a campfire). Under the effects test it is critical to answer this question. Even a `maybe' should trigger much more detailed legal review of all of your conduct.
  • Aggressive pricing strategies will need scrutiny. If you can afford to price products at below cost to get people in the door, that means (a) you might have market power and (b) your pricing could reduce competition, meaning you're misusing that market power.
  • Strategies around new product lines and markets will be another danger zone. If you're a big player in one market, and you can use that to get a leg up in a new market, you'll need to tread very carefully to avoid misuse of market power.
  • Even advertising strategies could need a rethink. Now that market power is suddenly a very dangerous thing to have, perhaps you don't want to go trumpeting about that you're the biggest selling brand in the history of the world ever. Or at least, you want to choose those words pretty carefully. The ad itself won't mean you have market power, but it might invite more ACCC scrutiny than any sensible business would want.
  • Last up, some good news. If you (and Tom Cruise) are on the highway to said danger zone, consider whether you could seek ACCC authorisation for your conduct. With the new effects test will come the ability to get authorisation for misuse of market power, which isn't currently available. Satisfy the ACCC of net public benefits and you'll be sweet (like a marshmallow on a campfire).