Price gouging inquiry calls for stronger competition law

The Inquiry into Price Gouging and Unfair Pricing Practices has called for a raft of reforms to strengthen competition in Australia and address exploitative pricing practices by businesses.

Professor Allan Fels handed down his final report for the inquiry yesterday, concluding that business pricing has added significantly to inflation recently.

In his report, Mr Fels said that profit push and seller inflation have occurred against a background of “high corporate concentration and is reflected in the surge of corporate profits and the rise in the profit share of gross domestic product”.

“There is much support for the view that prices have added much to inflation. This is to be found in research from OECD, IMF, BIS, European Commission, European Central Bank, US Federal Reserve Bank, Bank of England and many think tanks globally and locally and many detailed research studies.”

The report also disputes claims that the rise in profit share in Australia is explained by mining.

“The profits share excluding mining has risen and energy and other prices associated with mining have been a very significant contributor to Australian inflation,” it said.

The report found that a widespread lack of competition in Australian markets has enabled exploitative pricing practices to occur.

“There is a case for a much more active public policy for investigating and analysing practices that operate at unwarranted cost to customers,” the report stated.

It called for policies to remove obstacles to competition by the application of competition law or removal of government restrictions on competition.

“Exploitative practices rest on a platform of weak competition in many parts of the economy and would be generally reduced by a strengthening of competition law and policy,” it said.

It has also recommended policies for requiring the provision of better information to consumers or lessening or removing obstacles to consumers switching to other suppliers.

It also said that exploitative business practices should be shamed and exposed.

Reforms around divestiture and mergers needed

The report attributed the significant weakening in competition in the Australian economy partly to inadequate competition law.

It noted that Australia is one of the few OECD countries with no compulsory pre-merger notification law.

“The disadvantages of this include that there is tactical behaviour by businesses in terms of non-notification, late or no provision of relevant information required by the ACCC and other forms of game playing,” it said.

“This makes the task of the ACCC in applying merger law more difficult. Moreover, it can lead to the exclusion of the ACCC from coordinated international consideration of mergers, which occurs in the USA and the European Union which receive early merger notification.”

The report concluded that the Australian government should establish a pre-merger notification system along similar lines to most OECD countries.

It also said the merger test should be augmented to continue to prohibit mergers that substantially lessen competition.

The Inquiry has also called for divestiture power to be introduced into the competition law.

“Australia appears to lack the power to break up big businesses that break the competition law,” it stated.

“There is a strong case in principle for such a law because the structure of an industry can have a powerful effect on competition. The USA has successfully applied its divestiture law to break up the oil industry, the tobacco industry, the chemical industry and in recent times the telecommunications industry.”

These breakups have powerful effects on promoting competition, it said.

“Other countries such as Germany and the UK have a successful experience of divestiture and Australia itself has engaged in heavy divestiture activities in areas previously owned by governments e.g. electricity and gas,” the report said.

“There is a strong case, therefore, for applying divestiture law where there are breaches of the law proven in the courts and where the court on recommendation from the ACCC considered that the best answer to the problem is the breakup of the firm.”

The Inquiry has also recommended that Australia ban non-compete clauses in employment contracts in line with emerging American practice.

“These clauses cause a chilling effect on employees moving between employers and inhibit the transfer of talent to more efficient firms,” the report said.

“These clauses are also used to prevent part-time and casual employees from finding employment elsewhere, stifling employment growth. Australia needs to follow laws which are emerging in the United States and elsewhere which ban no compete clauses in employment contracts.”