The government has taken the first steps toward repairing Australia’s broken competition laws, releasing a consultation paper for changes to the Competition and Consumer Act, including changes proposed by the Australian Competition and Consumer Commission (ACCC) in relation to the operation of its assessment of mergers.
While the paper provides for the possibility of a lighter-touch regulatory regime and includes industry criticisms of the ACCC’s more hardline stance on the need for greater powers to stop mergers, it also makes the case for the failure of existing competition laws and the impact on productivity and the economy more broadly. Noting that evidence in the Australian economy is patchier than internationally, it argues from a number of sources that:
A range of competition indicators — including industry concentration, incumbency and firm markups — suggest an overall deterioration in competition in Australia since the early 2000s. There is evidence that declining firm entry rates have contributed to a reduced rate of convergence to the productivity frontier within industries, and that the rate of convergence is slower within industries that have experienced the largest increases in markups. The OECD in its recent economic survey of Australia has noted evidence that ‘a growing body of evidence links excessive concentration and market power with a range of poor economic outcomes’.
That’s a result, the paper says, of the fact that “too many anti-competitive mergers have been allowed to proceed in these jurisdictions and that ‘merger enforcement has been too lax over the past 25 years’”; a conclusion from the International Monetary Fund.
Some economists, former ACCC head Rod Sims and Assistant Minister for Competition Andrew Leigh have been pushing competition issues for years, but this marks the first time that the federal government has itself argued that the failure of competition laws has fed directly into lower productivity, poorer economic outcomes and lower wages, an argument that has been increasingly widely advanced in other economies for some years now.
It is one that business and its media cheerleaders bitterly resist, given their preference for blaming company taxation and industrial relations laws for curbing productivity growth. (Credit where due: Marxists were the first to home in on the monopolistic tendency of capitalism, until “monopoly capitalism” — a term that enraged neoliberal economists — as a thesis drew more widespread acceptance in the Depression.)
The paper itself proposed two sets of three models applying to different sections of the merger assessment process. The existing informal merger review process — in which companies seek the ACCC’s clearance and commitment not to undertake enforcement action — would be replaced with a voluntary formal clearance process, or a mandated clearance process for all mergers above a certain threshold, with the Federal Court making a determination about whether it proceeds or not, or a mandated clearance process for mergers above a certain threshold in which the ACCC would make a determination.
The paper also proposes changes to the way the ACCC makes assessments about mergers. One is an updating of the “merger factors” that must be taken into consideration by the ACCC (or their removal entirely); expanding the current “substantial lessening of competition” test to include the ability to block mergers that “entrench, materially increase or materially extend a position of substantial market power”; and expand the ACCC’s remit to non-merger agreements between companies.
The paper suggests all three of these changes could be considered, although it is the second one, expanding the power of the ACCC to block mergers that currently might slip through the “substantial lessening of competition” test, that is most significant. In particular, mergers that “entrench” an existing market power could include relatively small transactions involving a dominant firm acquiring a much smaller firm, which might fail the current test for not having a sufficiently substantial impact.
Consultation ends in January, presumably giving the government time to develop legislative options for passage later in 2024.
