ACCC boss departs not with a bang but a whimper
Well, the time has come for Graeme Samuel to finish up as ACCC Chairman. His departure will no doubt provoke mixed feelings and for that reason it’s worth pondering some of the alternative perspectives on Samuel’s tenure at the ACCC.
There will be those that will applaud his departure for the simple reason that they believe that Samuel could have done much more to promote vigorous and effective competition in a wide variety of sectors. With key Australian sectors having become more highly concentrated during Samuel’s time at the ACCC, there is a real and growing danger that consumers will increasingly be price gouged.
Samuel doesn’t appear to be too concerned about the growing concentration in key sectors. Free market theorists like to say that Australia is a small market and because of that we shouldn’t be too concerned if we end up with just a couple of large and powerful companies dominating particular sectors.
The problem is that the ACCC’s own research shows that where there is an ALDI supermarket in a local market the prices at a Coles and Woolworths in that local market are on average cheaper than other local markets where you only find a Coles and Woolworths supermarket. The point is simple; the more efficient competitors there are in a local market the lower the prices will be in that market.
Suggesting that the size of the Australian market somehow justifies allowing already large and powerful companies to get even larger and more powerful misses the key point of competition law. And that is, for competition laws to safeguard competition from the naturally predatory instincts of those large and powerful companies.
Large and powerful companies benefit from destroying competition so that they can raise prices and profit margins to the detriment of consumers. Those companies are about charging their customers more where they can get away with it. Deep discounting strategies are only short term and narrowly targeted as deep discounting is merely a gimmick to get more customers into the store so that they can be fleeced on other products and over time.
Contrary to the preaching we get from free market theorists about the size of the Australian market “justifying” the emergence of duopolies and oligopolies, the size of the market should never be a licence to rip off consumers. Of course, we should also never forget that monopolies and duopolies were the hallmark of failed communist regimes, and that ultimately private monopolies can be just as bad for consumers as public monopolies.
A free enterprise system is about promoting diversity of competitors in the marketplace. All markets in a free enterprise system can typically sustain a diversity of players. That competitive diversity needs to be safeguarded in the consumer’s interest as that diversity can be easily destroyed by the self-interested predatory behaviour of large and powerful companies.
Our competition laws are there to safeguard and promote competitive diversity as it is that diversity that safeguards sustainably low prices for consumers over time and across the full product range in the particular market.
Competition laws need to vigilant to rein in the market power of large and powerful companies as these companies generally have no interest in sustainably low prices over time and across their full product range. Quite simply, large and powerful companies want to raise prices and profit margins over time and across their product range, while using carefully targeted price cuts on a small part of the product range as a way of putting competitors out of business.
This is where Samuel’s tenure will come under the spotlight. The green light that the ACCC has given during Samuel’s time to mergers and acquisitions by large and powerful companies will certainly be well received by those companies and all those legal and other advisers who have financially gained from the mergers and acquisitions.
For those smaller companies and farmers on the receiving end of those large and powerful companies there is likely to be a less flattering view of the ACCC under Samuel’s tenure. Those smaller companies and farmers have not only received little or no comfort from the ACCC, but may have started to feel that the ACCC was more concerned about defending the pricing practices of Coles and Woolworths.
For those smaller companies and farmers the ACCC’s green light to Coles’ milk pricing practices was both predictable and disappointing. What was especially disappointing was that the public comments by the ACCC were short on key details and took a simplistic view of Coles’ pricing strategies.
During Samuel’s time the ACCC has typically been dismissive of predatory pricing allegations. The ACCC appears to have a simplistic view that any pricing behaviour by Coles and Woolworths is fine.
In the Coles home brand milk pricing matter the ACCC failed to publicly articulate when it considers that discounting becomes predatory pricing. Allegations of predatory pricing require proof that a company is selling a product below the company’s cost of supplying the product.
It’s not clear what measure of cost the ACCC used in the Coles matter. The measure of cost is the critical piece of information in a predatory pricing case and that piece is missing from the ACCC’s public comments.
The ACCC took a simplistic approach to whether consumers are better off because of the Coles price reduction on home brand milk. There was nothing to indicate that the ACCC compared the home brand price reduction with any price rises there may have been on other products that consumers may purchase at Coles. If Coles has raised prices on other products by an amount exceeding the home brand milk price reduction, then consumers would be worse off.
The suggestion that Coles is “self-funding” the home brand milk price reductions was naive as Coles could be raising prices across their product range to offset the reduction on home brand milk. A key issue left unanswered was what would the ACCC do if Coles tried to pass the cost of the price reduction onto milk processors at future contract negotiations?
Finally, the ACCC’s media comments did not address any allegations of misleading conduct where the various Coles advertisements about “prices coming down” may give the impression that the all or the majority of prices are coming down across the supermarket when indications are that only a fraction of products have been reduced in price.
So as Graeme Samuel leaves the ACCC it is opportune for his successor Rod Sims to have a long hard look at where the ACCC stands on effectively enforcing competition laws with a view to safeguarding competitive diversity as a key driver of a vigorously competitive Australian marketplace for the benefit of consumers.
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