|
INTERVIEWS
WITH ECONOMISTS
PROFESSOR
ALLAN FELS
Professor Allan Fels has been Chairman of the Australian
Competition and Consumer Commission since November 1995. He has
a five year appointment. Professor Fels was Chairman of the former
Trade Practices Commission from July 1991 to November 1995 and
was also Chairman of the Prices Surveillance Authority from March
1989 to October 1992. He was Director of the Graduate School of
Management, Monash University from 1985 to 1990 and is now an
Honorary Professor in the Faculty of Business and Economics at
Monash University. Professor Fels is also the Co-Chairman of the
Joint Group on Trade and Competition at the OECD.
What is the history and role of the Trade Practices Act 1974 and
the ACCC?
The Trade Practices Act 1974 (Cwlth) prohibits various kinds of
anti-competitive conduct including anti-competitive mergers. It
also includes some consumer protection laws.
The Australian Competition and Consumer Commission (ACCC) (whose
predecessor was the Trade Practices Commission) is responsible
for the administration and enforcement of the Act. For example,
if it discovers that competitors, instead of competing on prices,
have agreed on the price they will charge, the ACCC will typically
apply to the Federal Court of Australia for penalties of up to
$10 million per offence for companies and up to $500 000 per offence
for any individual involved. The ACCC may also seek injunctions
from the Federal Court to prevent anti-competitive conduct, including
anti-competitive mergers, from continuing or recurring. In some
cases it may seek damages and it can seek divestiture in merger
cases. Private individuals and firms may also take legal action
in many cases.
The ACCC is also the national economic regulator of telecommunications,
airports and interstate (as opposed to intrastate) aspects of
the electricity and gas industries. In this role it often becomes
involved in setting maximum prices for monopolies. It may also
set prices and other terms and conditions under which, in certain
circumstances, competitors may make use of the monopoly network
facilities of a monopolist where such access is necessary for
competition at upstream or downstream levels serviced by the network.
Typical networks include Telstra’s local telephone networks,
interstate gas pipelines, interstate electricity transmission,
airport facilities and rail lines.
Why is it important that anti-competitive activities be monitored?
When competitors agree not to compete with one another over prices
or other matters, prices tend to rise in a manner that is harmful
both to economic efficiency and consumers. There is rarely any
justification for price fixing agreements. However, there may
be a justification for otherwise anti-competitive mergers if,
for example, they can achieve economies of scale, thereby reducing
costs.
Under the Trade Practices Act, firms may apply for authorisation
of anti-competitive mergers, and other anti-competitive behaviour,
on the grounds that the public benefit (e.g. realising economies
of scale) outweighs the detriment from reduced competition. Authorisation
has the effect of granting immunity from legal proceedings for
arrangements or conduct that might otherwise breach the Act.
How does the ACCC go about its activities in reviewing anti-competitive
practices?
The analytical framework employed by the ACCC in determining whether
or not business practices are anti-competitive corresponds closely
to the framework found in economic textbooks about the determinants
of competition.
At the empirical level, the ACCC relies very heavily on information
from the market place in assessing the actual ‘real world’
effects of the conduct under investigation. In assessing the effects
of a business practice, the ACCC typically seeks information from
customers, especially business customers, suppliers, competitors
and other persons knowledgeable about the market, as well as receiving
submissions from the parties involved.
Typically, firms notify the ACCC in advance of a merger and seek
to persuade it not to oppose the merger in the Federal Court.
Where other breaches of the law are concerned, for example secret
price fixing agreements between competitors, initial information
about the breach may come from employees, ex-employees, customers
or competitors. The ACCC also has powers to investigate companies
internally and to interrogate witnesses where it has reason to
believe there may have been a breach of the law.
How have the activities of the ACCC influenced the operation of
firms in the Australian economy?
The Trade Practices Act and the ACCC have, over time, had a large
effect on Australian business behaviour, ultimately contributing
to improved efficiency. When the Act was introduced in 1974, a
large number of cartels, which had previously been lawful, ended.
Between 1977 and 1993, the Trade Practices Act only prohibited
mergers which gave rise to ‘dominance’, i.e. monopoly.
This is one reason why there is a large number of duopolies in
Australia. In 1993 the law was changed to prohibit mergers which
have the effect or likely effect of substantially lessening competition
in a market.
What have been the major successes of the ACCC to date?
Major successful prosecutions in relation to freight express companies,
building products companies and others in the 1990s, involving
millions of dollars of fines, not only ended price fixing and
bid rigging agreements in those industries but had a wide effect
on corporate behaviour in other sectors as business came to see
that the ACCC was credible and would vigorously pursue Court actions
against illegal practices. Over time, the merger law has had a
significant effect on the structure of the Australian economy.
What recent changes have occurred?
An important change to the Trade Practices Act occurred in 1995,
following agreement by the Commonwealth, the States and the Territories.
Previously, for constitutional reasons, the Act applied only to
corporations or to persons engaged in interstate trade and commerce.
From 1995 it has applied to all forms of business without exception,
whether privately or publicly owned, whether incorporated or unincorporated,
and whether trading interstate or intrastate. Moreover, the number
of areas in which Federal, State and Territory governments could
override the application of the Act by granting exemptions was
cut back and any such remaining exemptions have become subject
to independent public review.
Some of the new areas that are now covered include the health
sector, e.g. practices of the medical and legal professions; State-owned
public utilities, e.g. gas, electricity, water, and agricultural
marketing boards such as milk boards.
The focus of the ACCC’s activities has changed. Reduced tariff
protection and greater exposure of business to international competition
as a result of globalisation have meant that much of the work
of the ACCC that was once needed in the protected traded goods
and services sector is now a lower priority because import competition
will generally protect consumers. On the other hand, the need
for competitive and efficient suppliers of non-traded goods and
services to the traded goods and services sector (exports and
imports) is now much greater.
A focus of the ACCC’s activities is on sectors of the economy
not exposed to import competition. Some of these are not, or have
not been, very competitive and include telecommunications, electricity,
gas, airport, rail and water and so on, which are important both
for the Australian standard of living and as suppliers of inputs
to exporters and import competitors.
|