More competition is needed to fix high prices

Allan Fels, the the first chair of the ACCC. Picture: AAP

Allan Fels has presented a masterclass on the power of competition to protect Australian consumers. And he demonstrated why its absence now means industry-dominating companies, in Adam Smith’s words, “levy, for their own benefit, an absurd tax upon the rest of their fellow citizens”. It was, perhaps, passing strange that Professor Fels, the first chair of the Australian Competition & Consumer Commission, was speaking at the launch of a report commissioned from him by the Australian Council of Trade Unions. The ACTU is ambivalent at best about the power of the free market to serve society. Nevertheless, Professor Fels’ Wednesday speech to the National Press Club set out what he says is happening in Australia, with market power in many industries so concentrated that consumers lack the information to make informed choices about what they buy.

Professor Fels pointed to price gouging, when a lack of competitors means businesses can charge what the market will bear. He referred to prices rocketing up in response to market conditions – petrol is an example he cited – but floating down like a feather when seller costs decline. He described businesses, often power providers, charging up via offers that obscure the full price in incomprehensible options. He specified medical procedures as an example of out-of-pocket costs often not disclosed in advance. And Professor Fels suggested providers to the care economy, notably childcare and the National Disability Insurance Scheme, charge up wherever they can, knowing taxpayers are footing the bill.

As to what is to be done, Professor Fels makes a case for government to get involved. For a policy veteran of many decades standing, Professor Fels’ faith in the state to do good is admirably free of cynicism – he referred to the Albanese government denying Qatar Airways more flights into Australia, letting Qantas charge prices around 30 per cent higher. However, his intent is not to regulate industries but to encourage competition. One recommendation is for a state and federal competition and prices commission. This would act against public sector policy and practices that restrict competition. Plus, it would investigate the way a lack of competition increases prices. The other is stronger competition policy applying to companies that wish to merge and to those which have exploited market power and could be broken up.

Professor Fels’ case that more competition is in consumer interests is clear. Former Labor minister Craig Emerson, now reviewing for the Albanese government the voluntary code of conduct between supermarkets and suppliers, makes a similar point. “Governments – federal, state and local – have a role to play in removing barriers to entry confronting rivals to the major supermarkets.”

Critics of both inquiries can argue that even governments with good intentions to help ordinary people end up increasing levels of expensive regulation. It is what the state always does. They can claim the market will sooner or later sort out imbalances in information between consumers and business, and competition will increase. Maybe, maybe not. The risk for business in opposing pragmatic pro-market proposals from thinkers such as Professor Fels and Dr Emerson is that there could be way worse ideas at the ideological checkout. Greens senator Nick McKim is chairing a committee inquiry into supermarket prices, which is due to report in May.