Shopping for the best deal for consumers, not business

The Coalition is accused of playing cheap politics with threats to break up Australia’s supermarket duopoly. Joining forces with the Greens is always a bad look – but it is another window into how political interest can sometimes overlap at the extremities.

The Coalition is tapping into deep resentments in farm communities and small business about the market power of big retailers, and into consumer concerns about rising prices. And while divestiture powers are not the fringe, command economy proscription some have suggested, the Coalition must answer why it thinks expanding the enforcement provisions of section 46 of the Consumer and Competition Act will have a positive impact.

Critics argue it would have been better to wait for the outcome of a two-year review of competition policy overseen by Treasury and an advisory panel involving Kerry Schott, David Gonski and former Australian Competition & Consumer Commission boss Rod Sims. There has been no shortage of advice for Peter Dutton from ACCC chairs. Current chair Gina Cass-Gottlieb has said the powers would be “useful to have in the toolkit”. Past ACCC chair Graeme Samuel, who has been advising the federal government on reform of the Environmental Protection and Biodiversity Act, said the Dutton plans were a “disgrace, and populist politics”.

Inaugural ACCC chair Allan Fels, who has recently chaired an ACTU inquiry into price gouging and unfair pricing practices, has offered some support to divestiture powers. Suggesting Labor’s objection might be due to pressure by the Shop Distributive and Allied Employees Association, he said while forcing supermarket chains to divest individual stores might not be practical, forcing them to divest arms such as petrol or liquor would be a potent threat.

The important point is that the Coalition plan is to strengthen the regulatory armoury of the ACCC, not give politicians power to stand over big business. Nationals leader David Littleproud said divestiture would be determined by a court of law. Opposition Treasury spokesman Angus Taylor said under the Coalition’s proposal, forced divestment would be applied only where it could lead to a substantial improvement in competition. There must be a very real benefit that is proven in a court and it must pass a public interest test, he said.

In Australia, divestiture is available to the ACCC only as a remedy in limited cases: to unwind mergers; to dispose of assets in a foreign investment context; or as a last resort to deal with aggravated cases of abuse of market power in electricity markets.

A Treasury review found the international experience was varied. In the US, divestiture is available to redress a broader array of anti-competitive conduct and is used both for merger control and in monopolisation cases. Famous divestiture cases include the break-ups of Standard Oil and the American Telephone and Telegraph Company. More recently, divestiture was sought by the US Department of Justice against Microsoft relating to its Internet Explorer web browser. The action ultimately led to competition in the internet browser industry and the creation of Google.

In Britain, divestiture is available to address a substantial reduction in competition as a result of a proposed merger, and it may be ordered by the Competition & Markets Authority.

Critics of the Dutton plan point out there could be unintended consequences, particularly given the geographical size and small population of Australia. Supermarket chains benefit from economies of scale which, if broken, could lead to higher prices and less choice for consumers. Also, uncertainty can lead to less investment. Firms may be encouraged to focus on the most profitable areas, which could leave regional areas worse off. These are worthy arguments that deserve attention and are why the Dutton plan must include a proper consumer benefit and public interest test.

As Cass-Gottlieb has said, having a divestment power in the armoury would strengthen the arm of regulators, even if it was never used. Some people are shocked that conservative forces would argue for greater market regulation, but tightly concentrated markets deserve special attention. The priority is consumer interest and the objective is greater competition in a free-market system overseen by the courts. Ultimately, it is up to regulators and big business to make their case.