Threat of a big stick just might get the job done

The two dominant supermarkets, Coles and Woolworths, have higher market shares than in comparable economies. Picture: Getty Images

It is surely a bit of a turn up for the books, the Coalition’s proposal to insert sector-specific divestiture powers in the competition statute. Supermarkets and hardware stores will be covered – in other words, Coles, Woolworths and Bunnings are the targets. There will also be a supermarket commissioner, a title that has a certain Soviet ring to it.

Let’s be clear: the best way to deliver value-for-money, quality goods and services to consumers is through the operation of private competitive markets. Competitive markets should also provide ­acceptable returns to the providers of those goods and services, up and down the chain.

The point that the Coalition is trying to make, although not very convincingly at this stage, is that neither the supermarket nor hardware sector has the characteristics of competitive markets, with the large incumbents behaving in ways that harm consumers as well as damage suppliers. They also go out of their way to block new competitors.

There is no doubt that there is a large chunk of truth to the allegation of anti-competitive behaviour by the big firms in these sectors. The tactic of land banking – purchasing suitable land for a competitor and then sitting on it – is not uncommon, particularly in large regional towns. Selling popular items at below cost to get customers through the door, while demanding discounts from the suppliers, is another ploy.

Arguably, Bunnings drove the new competitor on the block, Masters, out of business. And, let’s face it, most of those smaller hardware stores that used to exist are gone.

The degree of market concentration in both these sectors is also considerably higher in Australia than in other countries. The two dominant supermarkets, for instance, have higher market shares than in comparable economies. Aldi, and to a lesser extent IGA, provide some competitive tension, but less so than elsewhere.

Having said this, it’s not clear what are the benefits of Woolworths having to sell its store in Maleny or Coles its store in Moorabbin. Will consumers be better off? Could there be losses in ­efficiency in the distribution network if the supermarkets’ turnover is substantially cut? Would it make more sense to force these companies to sell whole divisions – alcohol, perhaps?

The key question becomes: will including a divestiture power within Section 46 of the ­Consumer and Competition Act really lead to better outcomes, particularly after taking into ­account the inevitable red tape and legal costs? After all, most ­advanced economies do include divestiture as an option within their competition laws.

The Albanese government has committed to making the Food and Grocery Code of Conduct mandatory, which should in ­theory deal with the supplier side of the equation, as well as making a number of other changes. But the divestiture option was ­explicitly rejected.

There is a certain irony to this rejection however: the leaders of the principal union covering retail workers, the SDA (also known as the Shoppies) understand full well that lower economic rents for the big retailers mean fewer benefits for the workers. It is case of big business and big union having a common interest, but one that does not necessarily work in the interests of consumers.

Had the ACCC done a better job over the years then this heavy-handed intervention would probably not be necessary. After all, the ACCC is there to ensure that there is no substantial lessening of competition by dint of the conduct of corporations, an outcome it has failed to achieve on too many ­occasions. Its focus, its judgment, the standard of its analysis and ­investigation have too often been wanting.

In respect of the divestiture ­option, it will be a matter for the courts to determine the outcomes. This has some advantages ­because the judges will be guided by what is written in the law. But because the stakes will be high, the resources devoted to staging and fighting these cases will be very substantial, costs borne by tax­payers, shareholders and even consumers.

The preferred outcome will be for the big companies to see the new provision as a threat and mend their anti-competitive ways well before any court action is needed. Don’t forget, these companies were happy to waste shareholder funds on promoting a Yes vote for the voice.

They should have been ­focused on providing reasonably priced products at conveniently located stores. Treating customers and suppliers fairly and consistently should be their MO, while refraining from engaging in underhand tactics to undermine competitors. It’s the least we should expect, whether or not there are divestiture provisions.