The case against the effects test

If Barnaby Joyce supports an effects test you know it's anti-competitive. Small-business organisations also support the government's effects test because they want protection from competition. That's understandable from their perspective. But the objective of competition law should be to benefit consumers by protecting competition – not competitors.

Anti-competitive behaviour by businesses with substantial market power should not be tolerated. That's why Australia has competition laws. The existing law on the misuse of market power has a purpose test but not an effects test. That is, conduct with an anti-competitive purpose is prohibited. The Australian Competition and Consumer Commission's submission to the competition policy review asserts that it had been unable to take action against conduct that had an anti-competitive effect because it couldn't prove the conduct's purpose was anti-competitive. That assertion is false. Cases had not been failing because of the absence of an effects test. Some cases had failed on the basis that the ACCC was unable to prove a corporation had taken advantage of its market power for an anti-competitive purpose. But if the take-advantage limb was the identified problem, why did the ACCC argue the solution required an effects test?

In public discourse, the ACCC has described an effects test as a distraction that was side-tracking the debate. Its real agenda all along has been the take-advantage limb. It wouldn't matter if the effects test did no harm. But it will. Yesterday, Mr Joyce indicated the government's new effects test would be used to increase the price of supermarket milk which, he claims, is being cross-subsidised by the prices of other grocery lines.

The competition policy review and the government's own discussion paper both identify cross-subsidies as potentially having an anti-competitive effect. Uniform pricing across outlets by supermarkets and other retailers, which Mr Joyce once advocated, could breach the new effects test, meaning higher prices in the bush.

Business management cannot know in advance whether its day-to-day decisions will have the effect or likely effect of substantially lessening competition. In any event, the ACCC could easily take a different view. It will be left to the courts to decide over a decade or so. Meanwhile, company management and its legal advisers will have to try to second-guess the ACCC or enter court-enforceable undertakings to refrain from conduct that the ACCC considers – but has not proven – to be unacceptable.

The effects test is a solution in search of a problem. It turns out the problem was keeping the Nationals and the small-business lobby happy. That political problem has been solved but the problem of consumers having to pay higher prices has only just begun.