The head of the Australian Competition and Consumer Commission says he is “extremely disappointed” and “lost for words” after the managing director of Coles claimed the supermarket giant may have to increase its prices in regional areas or risk court action when the effects test is introduced.
The Turnbull government recently threw its support behind inserting an effects test into competition law, meaning small businesses and the competition watchdog will not have to prove before a judge that a big business intended to squeeze out competition.
Instead, aggrieved businesses and the ACCC will only have to show the courts there was a lessening of competition as a result of a big business’s behaviour.
Last week, Coles managing director John Durkin lashed out at the proposed changes.
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The supermarket boss told the American Chamber of Commerce in Australia the Turnbull government’s decision is a “very disappointing outcome”.
“I don’t make this assertion lightly,” Durkan told the crowd.
“We believe that the ability of successful businesses to compete will be constrained by the need to continually seek legal advice.
“We are advised here at Coles by some of the nation’s top competition lawyers that the new effects test could result in a raft of unintended consequences by capturing legitimate, vigorous and competitive behaviour.”
Durkan claimed the effects test will force Coles to charge higher prices in rural and regional areas.
“I’m concerned that under an effects test regime, companies like Coles will be less able to use their scale to bring about cost decreases and, therefore, lower prices,” he said.
“This is because another less efficient business may seek to argue their inability to offer similar prices is somehow unfair.”
Quizzed about the veracity of this claim, given Durkan comes from the United Kingdom – which has an effects test – the Coles managing director said, “We just don’t know [the consequences].”
The effects test will not make supermarkets increase their prices, according to competition regulator
However ACCC chair Rod Sims has hit back at Durkan’s claims, telling the ABC he does not see how the effects test would force Coles to increase its prices.
Sims is likely to receive a second term after the federal government signed off on his reappointment.
“Big business often talks on very important public policy issues about having a mature, well informed debate,” Sims said.
“I think that would be good if we could have that in relation to Section 46 rather than a misstatements, exaggerations and, quite frankly, mistruths to be honest.”
Sims says a big business using its scale to lower costs is in fact pro-competitive and would not trigger the effects test.
In addition, he points out there are already laws out there to deal with predatory pricing. That is, selling products below cost-price.
“If you out-compete your competition and put them out of business, that cannot possibly trigger section 46,” Sims said.
“Section 46 is about excluding your competitors. Another example was opening new stores… if you went out and bought all the land so that nobody else could build a supermarket, where you exclude your competitors, that’s where 46 comes into play.”
Effects test debate far from over
Peter Strong, chief executive of the Council of Small Business of Australia, told SmartCompany Durkan’s comments show the battle over the effects test isn’t over yet.
“We’ve won a battle we’ve never won before, but the war is still raging,” Strong says.
“The great bulk of us know we’ve got to change this. When you look at the people complaining, there’s just a handful of them, and they’re also the heads of some of the most dominate companies in Australia.”