Who's Hurting Who?

Monopolies and mergers policy is up for review.  The Commonwealth has given the job to former High Court judge Sir Daryl Dawson.  As always, the issues revolve around how to prevent a supplier being able to charge excessive prices.

The task in detecting such market power is difficult.  This is because nearly every firm has some degree of it.  If this were untrue, we would never see any price differences and there would be no point in shopping around.  Any firm that poked its prices slightly above the competition would lose every customer.

The battle lines in the review are set.  They are between those in the regulatory game who want increased powers, and businesses who are wary of the costs, inflexibilities and adverse publicity that goes with regulatory intrusion.  This last facet was highlighted in the shameful way that the ACCC stage managed "raids" on petrol companies showing TV footage of its officers emerging from a particular firm with bucketloads of phantom documents.

During the last review in 1986, the arm of the regulator was lengthened to reach firms with less power than that derived from "dominance" of a particular market.  A merger can now be prevented where it merely brings a "substantial lessening of competition".  This has led the ACCC to inappropriately review and require changes to mergers, like that between the Bank of Melbourne and Westpac, that made little difference to market power.

But the ACCC wants increased authority, including the ability to have executives jailed.  It also wants to weaken the test for monopolistic exploitation so that it can take action where the effect of one firm's market strategies damaged its competitors.

Whoa there!  Is it not the aim of every firm to wipe the floor with its opposition?  Is it not that sort of rivalry that leads to keen prices and the constant search for improved products and better service?  The ACCC would argue that they would judge where the particular strategies are legitimate, but business, chastened by some pretty low blows from Professor Fels, is in no mind to trust him.

Many businesses consider the ACCC has greater powers than Commonwealth Ministers whose real ability to act is disciplined by a hostile Senate.  Although the ACCC's decisions can be challenged in the courts, this is a lengthy process and embarking on it will generally defeat the purpose -- business firms, unlike bureaucracies, have to act fast to seize opportunities or watch them disappear.

Some business people welcome increased power for the ACCC, especially petrol retailers and pharmacies.  They see it as a bulwark against powerful suppliers.  Yet the petrol suppliers have had 45 different inquiries into their operations without these producing a scintilla of evidence of market power.  This is hardly surprising since they have been bleeding red ink for many years now, a feature that is rarely consistent with bloodsucking monopolies.

Those seeking regulatory assistance to gain a short term edge over their suppliers should bare in mind the longer term damage that such government control does to the efficient operations of a market.

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