The Competition Review: - PowerPoint Presentation

Slide1

The Competition Review:

The Competition Provisions of the Competition and Consumer Act Professor Allan Fels AOMelbourne Law School May 2014

Author’s name goes hereSlide2

OUTLINE

 Section 46Simplification of the competition provisions of the Competition and Consumer ActBroadening s 45

Exemptions

International price discriminationSlide3

SECTION 46

 Should an effects test be added to s 46?Should s 46 be rewritten totally?Slide4

ABUSE OF MARKET POWER

Abuse of market power is a key component of competition lawSection 46 is especially important in AustraliaGenerally speaking, s 46 is less effective than it should be: today’s focus is on its wordingSlide5

ADDING AN EFFECTS TEST TO SECTION 46

The terms of reference ask whether there are any gaps in anti-competitive behaviour that should be caught up in the Act: s 46 leaves an obvious gapA key principle of competition law is that a firm with market power should not be allowed to take advantage of that power to harm competitionThe CCA does not conform with that principleThe statute is an economic one designed to prevent harm to the economy

Purpose on its own is the wrong test, and causes the wrong focus in casesSlide6

ADDING AN EFFECTS TEST TO SECTION 46

Virtually every country in the world has an effects test (Treaty of Rome, Sherman Act, 125 other countries)Australia is an embarrassing exception (along with New Zealand)ACCC has stated that there are some cases it would bring under s 46 if it did not have to prove purposeThe law’s origins: 1976 amendments made in concession to big business, in the early days of the Act when s 46 was an unknown quantity

QWI/BHP case subsequently imposed economic boundaries on its interpretation

Failure to include an effects test has caused undesirable and unnecessary political amendments to the law to accommodate the pressure from small business and farmers:

Birdsville

amendments to the Act

Unnecessary recent amendments

Changes to the Act concerning unconscionable conduct and Codes of Conduct (not undesirable)Slide7

SECTION 46 – GENERAL 

Poorly wordedReferences to behaviour which harms competitors rather than competitionHighly undesirable Birdsville amendments and other, unnecessary provisions

Redesign

s46

– “a firm with a substantial degree of market power shall not take advantage of it for the purpose or effect of substantially lessening competition”?

Are the words “take advantage” problematic?

Redesign

s46

– a further option – “a firm with a substantial degree of power in a market shall not act in a way that has the purpose or effect of substantially lessening competition in a market”?Slide8

REDESIGNING SECTION 46: OPTIONS

 Simply add the words “effect or likely effect” Insert a separate section e.g. “a firm with substantial market power should not take advantage of it with the effect of substantially lessening competition”Add in changes to the section but as part of a general rewrite of this Part of the Act as shown above

other

options:

Introduce object test in place of/additional to the purpose test

Replace “take advantage” with more suitable wordsSlide9

OBJECTIONS

This will chill competition?Need to balance “chilling competition” with “harming competition”Effects test not seen as problematic in other countriesThe issue has been settled by earlier inquiriesDawson only considered the proposal that the words “or effect” be added to the existing s 46

Correct interpretation of s 46 cases is that it only considers

behaviour

unlawful if a firm with substantial market power takes advantage of it for the purpose of “substantially lessening competition”

If the above is incorrect, option two (regarding the addition of a new subsection prohibiting misuse of market power with the effect/likely effect of substantially lessening competition) would

workSlide10

OBJECTIONS

Little/no need for the test?The section works well?Adding the test would not make a large difference, so why do it?Should “purpose” be retained?Yes, in order to nip in the bud behaviour intended to harm competition

Could a substantial lessening of competition test deter pro-competitive

behaviour

?

If necessary, give guidance on the point or retain the term “take advantage”?Slide11

SIMPLIFICATION

Australia’s competition provisions are by far the longest in the world, as implied by the terms of reference (“Australia’s highly codified law”)Most countries have short, sharp provisions which cause a focus on economic outcomes rather than form of behaviourReasons in support of shortening our provisions:Legal and technical details distract from the key economic issues and cause a focus on technical issues eg

Bradken

and Super League cases

A root and branch review should review the Act’s structure

Opportunity to rewrite poorly drafted parts of the Act

Consistent with the red-tape reduction agenda

Would make the Act more intelligible to lay peopleSlide12

SIMPLIFICATION OPTIONS

Would not/should not make much difference if the Act were reduced to two lines (I do not actually advocate this)Harper Inquiry should conclude that the Act needs to be simplified over time, and that the process should begin with some obvious simplificationsBest approach is to endorse the principle of simplification, recommend some changes now and see how they workPriorities for simplification:

Eliminate

ss

96-100 (resale price maintenance)

Remove s 47 (subject to fixing s 46 and possibly s 45)

Remove

ss

45B and C but generally do not tamper much with s 45, retaining

ss

45 D-F

Simplify s 46Slide13

OBJECTIONS TO SIMPLIFICATION OPTIONS

Why do it? Why tear up fifty years of jurisprudence?This is not a big change of substance and this could be made clearThe courts are not up to interpreting a purely economic set of wordsCourts have generally handled it quite wellThere would be more uncertainty

Main uncertainty with the economic terms such as “substantial lessening of competition”

Isn’t it a low priority?

This is the time to take up this issue

It is a root and branch reviewSlide14

SECTION 45 

Courts have tended to adopt a restricted interpretation of “contract, arrangement or understanding”Additional words are needed to pick up on practices that facilitate anti-competitive outcomes, or possibly introduce the words “acting in concert”Trade the above for an abandonment of the price signaling lawShortening of the section could occur on a small scale but in general it does not need major rewriteSlide15

EXEMPTIONS 

NBN exemption – biggest anti-competitive arrangement in Australia’s historyIP exemptionSlide16

PRICE DISCRIMINATION

Some misunderstanding of what this is aboutReview is mainly about international price discriminationWhere this is enabled by statute (especially by restrictions on parallel imports) the legislation should be repealedMove to New Zealand position where all restrictions on parallel imports caused by statute have been abolishedTarget books, especiallySlide17

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