COMPETITION POLICY (13 Sept)
The Australian Competition and Consumer Commission (ACCC)
The statutory authority charged with administering the Competition and Consumer Act 2010 (formerly Trade Practices Act 1974).
Our priorities are reflected in four key goals:
- maintain and promote competition and remedy market failure
- protect the interests and safety of consumers and support fair trading in markets
- promote the economically efficient operation of, use of and investment in monopoly infrastructure
- increase our engagement with the broad range of groups affected by what we do.
Resale price maintenance
“Resale price maintenance” is the commercial practice of
(a) the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplierwhich is defined in Section 96 Part (3) of the CCA 2010.
Further summaries are here.
It is illegal for suppliers to:
- put pressure on businesses to charge their recommended retail price or any other set price, for example by threatening to stop supplying to the reseller
- stop resellers from advertising, displaying or selling goods from the supplier below a specified price.
While it is illegal for suppliers to cut off supply to wholesale or retail resellers in efforts to impose a minimum price, suppliers may withhold supplies of goods to a company that engages in ‘loss leader selling’. That is, purchasing goods with the intention of selling the goods below their cost so that:
- the company can promote their business
- the company attracts customers who are likely to purchase other goods or services.
Recommended case study reading: Tooltechnic
Cartels
Section 174 of ACC Act 2010 outlines prohibited cartel behaviour, which includes:
- price fixing, when competitors agree on a pricing structure rather than competing against each other
- sharing markets, when competitors agree to divide a market so participants are sheltered from competition
- rigging bids, when suppliers communicate before lodging their bids and agree among themselves who will win and at what price
- controlling the output or limiting the amount of goods and services available to buyers.
Consumer protection
Basic function is to ensure consumers can make purchasing decisions with the confidence of getting the products as described.
ACCC outlines the following main areas where it regulates in the interest of consumer protection:
- Buying safe products
- Identifying genuine businesses
- Protection from scams
- Customers of businesses that go bankrupt
- Dealing with consumer complaints
Mergers of large businesses can increase concentration and market power and lead to less competitive corporate behaviour. The ACCC plays a role in ensuring that mergers that are potentially anti-competitive are prevented.
It can do this by either offering informal advice prior to a merger on the competition issues (an informal merger review) which can inform the private parties about the potential for future investigations likely to be brought by the ACCC.
To formally approve a merger, private parties can seek a legal protection from investigation by the ACCC by obtaining a merger approval under s.50 of the ACC Act 2010.
Case study: Use the mergers register to find out the issues in the Murray-Goulburn case.
The ‘four pillars policy’ (with respect to Australian banks)
With common political agreement, and endorsement by the ACCC, mergers between Australia’s biggest four banks (ANZ, Westpac, NAB and Commonwealth) will not be allowed.
The competition issues are play here rarely fully elucidated. There is a notion that the banks already price signal to each other, allowing them to coordinate with interest rate pricing of mortgages, for example (which removes the incentive for customers to switch banks, and is a type of cartel behaviour or sharing markets).
However, the main issue in banking arises from the central banking system itself being uncompetitive by its nature. A new bank, even if it were to start and become successful by competing on price (i.e. lower interest rates on loans, higher interest rates on deposits and lower fees all round) it would be unable to ‘catch up’ to the four largest banks.
More detail on the necessarily uncompetitive nature of central bank system is here.
TELECOMMUNICATIONS (4 Oct)
The privatisation of Telstra
In 1997 the government, for numerous reasons, began to sell equity stakes in the government-owned enterprise called Telecom (then renamed Telstra). There were a variety of economic arguments for following the global privatisation trend, but many ignored the natural monopoly characteristic of the fixed line networks.
Extra reading: Parliamentary Brief from 1997 on privatisation issues.
'Access-’ vs. ‘facilities-based’ competition
Access-based competition relies on regulatory interventions to ensure that third-parties are able to use physical network infrastructure that exhibits natural monopoly features (like power lines, or phone lines). This occurs in rail (where the line is the network and trains from a variety of companies are allowed), fixed-line telecoms, and other large assets.
Facilities-based competition is competition between owners of multiple facilities, such as the Telstra and Optus mobile phone tower networks. In such an environment there may also be a degree of access-based competition on each network.
‘Operational separation’
When a firm operates partly in a regulated sector (for example, with access agreements in place for infrastructure that they own) and partly in an ‘unregulated’ competitive sector, it is necessary that the ownership of the regulated asset is not used to advantage their competitive business (such as retail provision).
Separation in practice this is hard to achieve, as it is rather contrived. There are always incentives for companies to allocate costs to the regulated part of the business rather than the competitive part.
More detail on the necessarily uncompetitive nature of central bank system is here.
TELECOMMUNICATIONS (4 Oct)
The privatisation of Telstra
In 1997 the government, for numerous reasons, began to sell equity stakes in the government-owned enterprise called Telecom (then renamed Telstra). There were a variety of economic arguments for following the global privatisation trend, but many ignored the natural monopoly characteristic of the fixed line networks.
Extra reading: Parliamentary Brief from 1997 on privatisation issues.
'Access-’ vs. ‘facilities-based’ competition
Access-based competition relies on regulatory interventions to ensure that third-parties are able to use physical network infrastructure that exhibits natural monopoly features (like power lines, or phone lines). This occurs in rail (where the line is the network and trains from a variety of companies are allowed), fixed-line telecoms, and other large assets.
Facilities-based competition is competition between owners of multiple facilities, such as the Telstra and Optus mobile phone tower networks. In such an environment there may also be a degree of access-based competition on each network.
‘Operational separation’
When a firm operates partly in a regulated sector (for example, with access agreements in place for infrastructure that they own) and partly in an ‘unregulated’ competitive sector, it is necessary that the ownership of the regulated asset is not used to advantage their competitive business (such as retail provision).
Separation in practice this is hard to achieve, as it is rather contrived. There are always incentives for companies to allocate costs to the regulated part of the business rather than the competitive part.
The NBN proposal(s)
Failure of facilities-based competition to arise in the fibre optic sector (except for in the CBDs of major cities) prompted the Labor government to announce a public entity that would fund and build a national fibre-optic network and operate as a wholesaler to a competitive retail market.
The meaning and significance of FTTN versus FTTP setting a price for services of the NBN Major issue is that the cooper from the node to the premises is owned by Telstra, so now there are two network owners who will both be angling for a bigger slice of the retail price. This is foolish in general. How will a price for access to only the last hundred metres of cooper be determined?
Failure of facilities-based competition to arise in the fibre optic sector (except for in the CBDs of major cities) prompted the Labor government to announce a public entity that would fund and build a national fibre-optic network and operate as a wholesaler to a competitive retail market.
The meaning and significance of FTTN versus FTTP setting a price for services of the NBN Major issue is that the cooper from the node to the premises is owned by Telstra, so now there are two network owners who will both be angling for a bigger slice of the retail price. This is foolish in general. How will a price for access to only the last hundred metres of cooper be determined?
