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ACCC pledges to crack down on supermarket dominance

The Chairman of Australia’s competition watchdog has come out swinging over competition in local markets including the food industry.

Chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims, outlined the current ACCC priorities at the Australia Israel Chamber of Commerce’s Business Leaders Lunch in Perth yesterday.

According to Sims, of the 40 to 50 cases the ACCC always has in the Federal Court, about a quarter is related to competition.

“We currently also have 35 separate investigations underway into misuse of market power, cartels, or cases involving a substantial lessening of competition,” he told the audience.

“While these cases are complex, and take considerable time and resources to investigate and then prosecute, the deterrent effect of our work is substantial.”

As part of the ACCC’s bid to improve competition in Australia, which would include taking on even more competition cases, he outlined a strategy it would be using.

It will be focused on the online economy, cartels and misuse of market power and other anti-competitive behaviour, especially in concentrated markets, such as the supermarket industry.

In terms of the digital and online markets, which the ACCC has outlined as a key priority after a strategic review this year, as it poses two of the biggest regulatory challenges.

Digital marketplaces

They are ensuring consumers enjoy the same protections in the digital and online economy as they do in other environments, and making sure there is fair competition in the digital and online economy between new and innovative competitors and their older counterparts.

“We are examining whether certain current bricks and mortar leading firms are seeking to prevent online competition in ways that breach the Competition and Consumer Act (CCA),” Sims said.

“I recently heard one such retailer claiming that bricks and mortar incumbents will dominate online shopping in future and see off completely new solely online competitors.

“It would be a missed opportunity for competition if this became the inevitable outcome.

“Our cases against Ticketek and Flight Centre are two prime examples of our enforcement work to ensure competition online.

“A related case is our successful court action against Apple for misleading consumers about Apple 4G iPad’s capacity to connect to the 4G network in Australia which also has competition implications.

“Other firms, Samsung for example, sell tablets which compete with the iPad and which can connect to Australia’s 4G network.

“Those firms are entitled to compete in a market that is fair in terms of the claims that are made about what the devices can do,” Mr Sims said.

Sims also discussed the misconceptions cartels have about legal conduct, saying the key focus area for the watchdog could result in prosecution.

“Combating the damage cartels wreak on other businesses, consumers and the economy has been a major ACCC priority for some time,” he said.

“For over a year now we have been taking a more proactive approach to cartel conduct, following results from the 2010 Melbourne University Law School research that showed 58 percent of businesses don’t know that fixing prices, rigging bids, sharing markets and restricting supply is a criminal offence that can result in a 10 year jail sentence and of the 42 percent of businesses that understood the potential criminal nature of cartel conduct, almost one in 10 said they’d still be likely to join a cartel if the opportunity arose.”

“Our proactive enforcement and education program aims to bed down the new laws and increase awareness of them.

“We have 10 current cartel enforcement matters before the Federal Court.

“We have a number of active cartel investigations currently underway.

“We have conducted a direct mail and email campaign to targeted and general industry sectors informing them of the criminal penalties and how immunity can free them from prosecution.

"This includes letters to 2,500 executives in the heavy construction and construction supply industries.

“We have made and distributed a short film called The Marker that shows how involvement in cartels can ruin your business and your life – I have personally sent copies to the CEOs of the 300 top ASX listed companies urging them to show it to relevant employees at all levels of the organisation

“We have gained significant media publicity around our most recent court case and the launch of The Marker”.

Misuse of market power

Sims pointed out that due to the size of the country and our distance from other markets, there are many concentrated markets in Australia, and the misuse of market power must be stopped.

He said the ACCC is carefully observing key markets where this is occurring to make sure no mergers or arrangements that substantially lessen competition, are occurring, and where the obvious market power is not misused to prevent or damage competition.

Anyone within the supermarket industry would know that it is one of the markets the watchdog must be keeping an eye on, following an intense couple of years of price cuts and damage to suppliers’ businesses by the big two dominant forces,  and while Sims maintained the markets being targeted are confidential at this stage, he did outline the three most pressing areas.

“Issues relating to the treatment of suppliers by the major supermarket chains,  which include competition issues as well as allegations of unconscionable conduct, business-to-business, which we are keen to pursue generally,” he said.

“Investigating the sharing of information about prices in the fuel retailing sector, and examining the longer term competition implications of the large shopper docket discounts provided between the fuel and supermarket sectors in particular.”

Mergers and acquisitions

The ACCC will be closely monitoring the impacts of potential mergers and acquisitions to ensure they are used for the right purposes – to make companies more efficient – rather than for lessening competition.

“Some of the mergers and acquisitions we review clearly attract a lot of publicity,” he said.

“Understandably, the parties involved in a transaction have an interest in having their merger dealt with as quickly as possible and this can lead to criticism of the length of time the ACCC takes to reach a decision on a proposed merger.

“The length of time our reviews take, and the potential impact on the parties’ commercial time-frames, is something the ACCC is acutely aware of and is taking a number of steps to address.

“The publication of a Statement of Issues is part of the ACCC’s processes that ensure transparency of our consideration of merger proposals.

“We will take account of the reactions from the market and the merger parties to the concerns we have outlined.
“At this stage we aim to make a final decision on this transaction in mid-October.

“Close scrutiny from the ACCC will be particularly the case in concentrated markets.

"As I noted above, we want to ensure that mergers will not result in structural changes leading to a substantial lessening of competition.

“While there are a range of factors to take into account in assessing mergers under section 50, market concentration is a key factor.

“When a merger is a “3-2” – so, when a merger reduces the number of key players in a market from three to two – the parties should not be surprised that the ACCC would want to carry out a full review.

“With only two principal players remaining in a market, each will learn to anticipate the actions and reactions of the other. 

“In these circumstances, the ability of the two remaining firms to raise prices or reduce quality for consumers generally increases.”

What are your thoughts on Sims' comments? Do you think the new plan by the ACCC will improve the food sector? What else needs to be done?

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