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Labor’s proposed competition reforms do little to address inequality

Labor argues that market concentration reduces competition but that’s not always the case. Dan Peled/AAP

Labor’s proposed competition reforms do little to address inequality

Despite Labor’s claim that its recently announced competition-related proposals will tackle inequality and competition in markets, its proposals are far from adequate. In fact, they are unlikely to do much at all.

Labor announced that it would adopt four competition-related reforms to address inequality, including two amendments to the Competition and Consumer Act (CCA). These amendments would allow for higher penalties in cases where the conduct targets or disproportionately impacts disadvantaged Australians and the prioritising of these cases for investigation by the Australian Competition and Consumer Commission (ACCC).

Labor also wants to assess the impact of increased market concentration on income inequality and create further policies to mitigate the negative effects of market concentration. It plans to adopt the Harper Review’s recommendation that states and territories include competition principles in planning and zoning legislation, but with a focus on appropriately zoned land for key services in disadvantaged communities.

Labor argues that its proposals are needed as increasing market concentration in Australia has contributed to greater inequality. However, this indicates a fundamental misconception about the relationship between concentration and market competitiveness.

Just because a market is concentrated, this does not necessarily mean that anti-competitive outcomes will follow. Concentrated markets can be competitive and markets with low concentration can be anti-competitive.

The most competitive structure for a market might be to have only a few participants. Given Australia’s geography, population, and economy size, some industries and markets simply cannot support more than a handful of market participants. In these markets, the number of businesses left standing are those left after the competitive process has weeded out inefficient businesses or those not delivering what consumers want.

Labor has assumed that high profits are the result of market power derived from concentrated markets. Such claims have been largely discredited in current economic literature.

What is important for market competitiveness is the actual behaviour of market participants.

Businesses, no matter how big or small, whether operating in a market with three or 20 competitors, can collude to raise prices and harm consumers. A business might have a strong market position because it offers superior products and services and is the most innovative and efficient at what it does. It might have obtained that position through extracting market rents. The business can abuse that power to harm consumers, or it might continue to improve its product and service offerings to keep its position.

Simply put, looking at the level of market concentration is not a satisfactory proxy for ascertaining whether a market is competitive.

However, none of Labor’s proposed amendments to the CCA addresses anti-competitive business conduct and how it contributes to inequality or inequitable outcomes. Nor do they actually target Labor’s concerns regarding concentration and monopolies.

For example, Labor could propose that the courts be given the power to order the break up of monopolies or businesses with substantial market power. This option, though effective to address Labor’s concerns about concentration, might be considered politically unpalatable.

Instead, Labor’s proposed amendments only tinker around the edges of competition law and are not substantial departures from current enforcement practice. The priorities of the ACCC, for example, are already focused on protecting the interests of vulnerable and disadvantaged consumers and on industries with high concentration levels, such as supermarkets and fuel.

However, what Labor has done is bring up the broader and more important question of whether competition law and policy in Australia should address issues relating to inequality.

The prevailing view is that competition law and policy should focus only on increasing the size of the economic pie and leave the division of that pie to other government policies. To date, Australian competition law and policy has largely taken this path. It has focused on economic efficiency within the rubric of consumer welfare, leaving consumer protection, tax, and industrial policies to address distributional and equity concerns.

However, there is a growing recognition that competition law and policy can and should be designed to produce better outcomes for those who are disadvantaged, poor, or denied economic and other opportunities.

It could involve enforcement of competition law with a focus on markets that disproportionately impact the disadvantaged, for example those relating to essential goods and services. The ACCC already does this, and Labor’s proposal to require the ACCC prioritise investigations adopts this approach.

Much more can be done. Competition law could be revised to expressly adopt the reduction of inequality as one of its objectives. Remedies could be specifically designed to benefit disadvantaged consumers. Competition law could address government granted monopolies and privileges, state sanctioned barriers to entry and protectionist measures, and other government measures that restrict competition. These measures are amongst the most harmful to the interests of the poor, vulnerable, and disadvantaged.

Action must be taken to address inequality in Australia. Labor is absolutely correct on this point. If markets contribute to rising inequality, then competition law should and could be aimed at addressing this problem. Labor’s proposals, however, fall disappointingly short of the mark.