Changes to competition laws may hurt consumers

Answering what is considered a substantial lessening of competition is not easy. Image sourced from www.shutterstock.com

The government has gone the “full Harper” on the misuse of market power laws. This means that the law will no longer be about “misuse” of market power. It also means consumers may be the losers.

If the government accepts the exact wording from the Review, the new law will state that:

“A corporation that has a substantial degree of power in a market shall not engage in conduct if the conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.”

There are three key changes compared to the current law.

First, the new law will replace the existing three (complex) “competition tests” with one simple test. Does the conduct substantially lessen competition? This is a useful change and in line with the other parts of the competition laws.

Second, the current law requires that the business' “purpose” is proved. The new law only requires that a business act with either the purpose or effect or likely effect of substantially lessening competition. This is a clarifying change. The current law already allows the court to infer “purpose” from conduct. The change does away with the need for this inference.

Third, and most importantly, the new law removes any connection between conduct and market power. The current law only makes illegal conduct that is a misuse of market power. The firm must “take advantage” of its market power when engaging in illegal behaviour. It must behave in a way that is inconsistent with the behaviour of a competitive business.

The new law removes this connection. So any behaviour by a big business that substantially lessens competition may be illegal. This means that the entire test of what is legal or illegal for a big business will now rest on a simple question: What is a substantial lessening of competition?

That is not an easy question!

To see this, take the most recent misuse of market power case settled between Visa and the Australian Competition and Consumer Commission (ACCC) last year. Visa was fined A$18 million for limiting the ability of “dynamic currency conversion” (DCC) competitors to compete when overseas consumers chose to use a Visa card at a store in Australia.

(If you have travelled overseas, used a credit card and been asked if you want to pay in Australian dollars, this is an example of DCC.)

Firstly, I should state that I helped Visa on this matter. Why? Because I do not think there was any substantial lessening of competition.

Why not? Visa’s actions certainly harmed those businesses who wanted to provide DCC to consumers. But the Sydney Morning Herald labelled DCC a “scam” last year. So too did the Times. US News and World Report calls DCC a “trap”. As part of its 100 travel tips, The West Australian advises against using DCC. Travel website Rick Steve’s Europe states that

“Dynamic currency conversion may seem like a nice perk, but you’ll actually end up paying more. The dollar price is usually based on a lousy exchange rate set by the merchant …”.

And if you are worried that I have a bias, please just do your own search or look up the Wikipedia entry on DCC.

There is a strong argument that Visa’s conduct, while harming DCC suppliers (such as banks) was helping consumers. This is not because Visa is “nice”. It is because having a “scam” occur when you use a Visa card is bad for Visa’s reputation and long term profits.

If Visa’s actions helped its profits but also protected customers, even though harming some individual businesses who arguably wanted to rip off those customers, is this a substantial lessening of competition?

The ACCC clearly thought so. But our misuse of market power laws should be about protecting consumers, not protecting the profits of particular private businesses. Our courts have recognised this in the past.

Unfortunately the term “substantial lessening of competition” does not make this clear. And if future courts follow the same path as the ACCC did in the Visa case, then the amendments to our competition laws will hurt consumers.

Hopefully our courts will get it right. Hopefully our judges will understand that the aim of competition is not to protect businesses that are inefficient or who wish to rip off consumers. Hopefully in a few years we will have a series of judgements under the new law that clarify that a business with market power substantially lessens competition when consumers, rather than individual competitors, are harmed.

But good law is not made on “hope”. It is clear and precise. And that is why the government has made a mistake in accepting the changes to our misuse of market power laws.