Chapter 3 - Evidence in relation to the bill
3.1
A variety of views were expressed on the Trade Practices Amendment
(Predatory Pricing) Bill 2007. Some submissions broadly supported the bill. A few
expressed concern that the bill would be ineffective or did not go far enough
in protecting small businesses from predatory pricing.[1]
The majority, however, opposed the bill. They did so on various grounds:
- the addition of a 'substantial financial power in a market' test;
- the phrase 'unreasonably low prices' in the definition of
predatory pricing;
- the definition of 'cost' in the bill;
- the inclusion of a clause on recoupment; and
- the bill's application to three specified markets—grocery, fuel
and pharmaceuticals.
Concerns about the proposed amendments
The uncertainty of terms
3.2
The main area of concern with the bill was the uncertainty of its terms.
Several submitters argued that the courts were unfamiliar with these terms,
which may adversely affect the operation of section 46 of the Trade Practices
Act (TPA) and its central objective of promoting competition and the welfare of
consumers.
3.3
The law firm, Addisons, strongly rejected the bill given the legal
uncertainty of its terms. Ms Kathryn Edghill, a partner at Addisons, told the
committee that the Senator Fielding's amendments represented 'a lawyer's
heaven' with more uncertainty and confusion.[2]
Similarly, Mr Graham Maher, also a partner at the firm, told the committee that
the uncertainty of the bill's terms would result in a 'very conservative
approach to competition in the market'. Both Mr Maher and Ms Edghill argued
that business would face significant costs coming to terms with the amendments,
which would not be in the interests of Australian consumers.[3]
3.4
Several submitters had difficulty with the bill's reference to 'financial
power'. Coles' submission argued that 'financial power' is 'not a relevant
concept' in Australian competition law, and that its introduction would create
considerable uncertainty. It could result in an increased number of court
actions and ACCC investigations, which could in turn lead to greater caution,
less competition, less discounting and increased costs to customers.[4]
Mr Dave Poddar, a partner at Mallesons Stephens Jacques, expressed concern at
how the test of 'financial power' would operate in practice. For example, there
is potential confusion as to whether the test would consider corporations'
parent companies or their bank facilities.[5]
Mr Poddar explained that these factors are not necessarily a good guide as to
whether a corporation has 'financial power' and may unnecessarily constrain
corporations' activities.
3.5
There was also confusion with the bill's reference to 'unreasonably low
prices'. Woolworths noted that it is a concept that is 'undefined and unknown
to the law or any regulator'. Its legal effect would be to protect inefficient
companies from competition.[6]
Recoupment
3.6
The bill's clause on recoupment also drew criticism from submitters and
witnesses. Addisons criticised the bill for its inclusion of a clause on
recoupment. Ms Edghill argued that recoupment must be a factor considered by
the courts in determining a transgression of section 46. The bill's clause
would send a signal that recovering losses is not a necessary indicator for the
courts in determining a predatory pricing case. Mr Maher told the committee
that the High Court is currently aware that the issue of recoupment is a factor
that the court may consider in section 46 cases.
Sector specific amendments
3.7
Several submitters criticised the bill for its explicit reference to
three markets. Coles' submission disputed that there was any evidence of market
failure peculiar to these markets, or that there is any need for more stringent
controls on predatory pricing in these markets. Addisons' submission argued
that in the absence of 'a clear case of market failure in those sectors', the
bill could distort competition and harm consumers. Addisons, Associate Professor
Zumbo and the Law Council of Australia (LCA) also foresaw confusion as to
whether certain products were part of the identified sectors.[7]
The LCA put the issue in the following terms:
The provisions of the Trade Practices Act in relation to
misuse of market power should be applicable to all markets ... The 'markets'
identified will introduce unnecessary uncertainty, give rise to demarcation
disputes (what is a 'grocery' or a 'toiletry'?) and will not be adaptable
readily to developments in the economy and relevant markets. There is no clear
rationale for special treatment in those cases especially.[8]
3.8
Even submitters who broadly supported the bill were critical of its
narrow scope. Spier Consulting, on behalf of the Independent Liquor Group,
urged that 'the liquor industry be added to list of three industries' subject
to the bill.[9]
The Post Office Agents Association Limited, the Fair Trading Coalition and the
Motor Trades Association of Australia also suggested that the bill be
considered for wider application.[10]
The wrong approach
3.9
The committee also received evidence that the bill would not guarantee
greater protection for small business. Ms Edghill told the committee that expressed
concern that section 46 was 'not the vehicle' to protect small business. She
contrasted the intent of this section with subsection 51AC of the TPA, which
clearly was introduced to protect the concerns of small business. Moreover, in
her opinion, section 46 was working well and the lack of successful
prosecutions on 'misuse of market power' cases was not an indicator that the section
was not working as intended.[11]
The bill's amendments would not lead to more prosecutions on predatory pricing
because they do not resolve the fine line between aggressive competition and anti-competitive
conduct. On the contrary, big and small businesses alike would face significant
costs in identifying competitors' variable costs and uncertainty as to the
meaning of 'financial power'.[12]
3.10
The committee enquired as to the success of the Canada's predatory
pricing legislation, which is in some ways similar to Senator Fielding's bill. Ms
Edghill told the committee that this legislation did not result in more
prosecutions on predatory pricing. Indeed, she identified only one finding of
predatory pricing under this legislation. Ms Edghill concluded that codifying
'predatory pricing' did not provide the fix that some legislators had hoped.[13]
Conclusion
3.11
The committee acknowledges the concerns of several submitters to this
inquiry about the need to protect small business from predatory pricing and
uncompetitive conduct. The overwhelming evidence, however, is that this bill is
not an appropriate response to these concerns. Its terms, the clause on
recoupment and its restricted scope would introduce considerable complexity and
uncertainty to the Act. It is highly unlikely to protect small business,
Australian consumers or Australian families from anti-competitive practices.
Indeed, the committee believes that the bill would harm these groups.
Recommendation 1
3.12
The committee recommends that the bill not be passed.
Senator the Hon Michael
Ronaldson
Chair
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