"Rudd to rein in business bullies" and "War on market thugs" were two headlines that accompanied the decision announced on Monday to amend the Trade Practices Act. The decision will make it easier to prosecute companies engaging in "predatory pricing".
Predatory pricing is when a company lowers its price below cost with the intent of driving a competitor out of business, then recouping costs by setting prices even higher than they were before.
No company is keen on competitors taking business away from it and every company would like improved margins.
But predatory pricing is an astonishingly difficult tactic to employ. It means the predator bleeds red ink while trying to knock out its rival and that no other company will seek to replace the vanquished rival.
It is not uncommon for businesses large and small to involve themselves in price cutting in general or to selected valued customers. That's all part of the competitive process.
Among larger companies, newspapers, airlines, even cardboard box makers from time to time engage in pricing activity that is superficially predatory. Companies are always trying to attract customers with specials and would normally be very pleased to knock out competitors. Sometimes they offer free trials, an offer that is by definition below cost.
Nobody wants to prevent lower prices, and the Government is even trying to legislate for them in the case of petrol. But, the Government argues, if a predatory action could be made to stick, the outcome would, by definition, be a net increase in prices over time.
Under similar pressure to help the underdog smaller businesses that are often less well equipped to engage in the competitive cut and thrust, the Coalition introduced the Birdsville amendment (so-called after the pub in which it was negotiated by Senator Joyce).
This was a compromise that required proof that the predator could recoup the lost profits from the battle. This requires some likely entry barrier stopping another competitor offering a supply when a successful predator started raising prices. Hence, to avoid too ready a recourse to bringing in the Government to side with the higher-pricing company in a competitive struggle, tests of the bona fides are in place.
Such measures are necessary to prevent the Australian Competition and Consumer Commission paralysing businesses with paperwork every time a competitive intensification emerges.
Because, the truth is, nobody has ever identified a successful case of predatory pricing. The original example offered was Standard Oil in the US, but Standard Oil simply had lower costs than its rivals and its so-called predatory behaviour took place at the same time as it was losing market share.
The ACCC championed the case for it to be given additional powers to step in and dictate the terms of competition. Welcoming the decision, ACCC chief Graeme Samuel said previously: "We were always concerned about the ability to prosecute cases; we've only had one success in 45 years."
So there you have it. The ACCC has little faith in the market processes over which it has powers. It wrongly attributes its lack of success in litigation to the dice loaded against it.
The amendments will provide further opportunities for the ACCC to flex its muscles and doubtless allow it to bid for a larger budget. Small businesses now have a "permanent voice within the ACCC" that can be recruited against a competitor offering lower prices and can make a determination without any tests of its merits or practicality.
All of this is discomforting. Giving the ACCC more powers to pursue companies that are pricing goods and services too attractively for the consumer will put a brake on competition.
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