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
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
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
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
would be a rational business decision or strategy by a
corporation that did not have a substantial degree of power in the
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
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
The Draft Report also recommends:2
extending the reach of Australian competition law to capture
any conduct which "damages competition in markets in
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.
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