New controls on companies with market power are now in prospect in Australia.
This proposal is one of the key recommendations in the draft report of the Harper Competition Review Panel.
Should the Australian Government adopt this recommendation, there is a very good chance that New Zealand will follow suit as the New Zealand Commerce Commission has been pushing for similar changes here.
The current test
Under Australian (and New Zealand) competition law, companies with a “substantial degree of market power” are prevented from taking advantage of that power for an anti-competitive purpose (such as driving a competitor out of the market).
The “taking advantage” requirement has been criticised by the Harper Panel as “difficult to interpret and apply in practice" 1 – a view which is shared by the Australian Competition and Consumer Commission, the New Zealand Commerce Commission and the New Zealand Productivity Commission.
An alternative test
The Panel proposes applying the same test as is now used for agreements between competitors. This approach considers conduct to be anti-competitive if it has the purpose, effect or likely effect of substantially lessening competition (SLC) in a market.
Under an SLC test, companies with market power will be far more susceptible to claims of anti-competitive conduct, regardless of whether that was their purpose or intention. In order to counter the chilling effect this is likely to have on legitimate competition by large companies, the Panel has proposed a defence if the conduct:
- would be a rational business decision or strategy by a corporation that did not have a substantial degree of power in the market, and
- the effect or likely effect is to benefit the long-term interests of consumers.
This change requires the business itself to justify the legitimacy of its conduct and prove consumers will be better off in the long-term. This is a fundamental shift in the ability of large companies to compete against smaller rivals.
A new approach to “concerted practices”
The Draft Report also includes several proposed changes to simplify Australian competition law, including removing the controversial “price signalling” provisions.
These provisions currently restrict disclosure of information by the banking sector to facilitate market coordination (such as price rises in parallel). Instead, the Panel wants the basic competition laws expanded to capture “concerted practices” between competitors.
Liability would no longer be dependent on the existence of a contract, arrangement or understanding between the competitors. The regular disclosure or exchange of price information (the “concerted practice”) would be all that is required.
We agree with the removal of the price signalling provisions. However, there is a risk that the “concerted practices” concept may cast too wide a net, capturing conduct which may be rational for competitors in small, relatively transparent markets (including, conduct where there has been no deliberate “meeting of the minds” between the competitors).
Australian competition law could apply to New Zealand companies
The Draft Report also recommends:2
- extending the reach of Australian competition law to capture any conduct which “damages competition in markets in Australia”, and
- allowing private competition damages claims to be brought against overseas companies.
This means that New Zealand companies could be liable under Australian competition law even if the company is not incorporated in, or does not carry on business within, Australia.
Some things won’t be changing
The Panel has not recommended a change to the rules on resale price maintenance nor the introduction of restrictions on “creeping” acquisitions (where significant shareholdings are built up over a time period).3
Timetable for change
The full text of the Draft Report can be found here. You can submit comments on the Panel’s report up to 17 November 2014. The final report to the Australian Government is expected by 27 March 2015.
Similar change likely in New Zealand
As we have commented previously, both the New Zealand Commerce Commission and the Productivity Commission are seeking change to the New Zealand abuse of market power provision. The Harper Panel report and any subsequent changes to the Australian legislation are likely to be watched closely as a model for change here.