Competition Policy between Australia and the US - Example

Competition Policy between Australia and the U.S. Your name:   Course name:         Professors’ name: Date: Introduction The last decade has witnessed countries and economies in transition adopting competition policies and laws (Clark, 2007). As the effect of globalization is being felt, countries are becoming substantially market-oriented and more open. Some countries such as Australia and the U.S. have realized that while economic liberalization may be a pre-condition for the growth of a free trade (Demsetz, 2005), it does not, by itself, guarantee effective competition because there are incentives for organizations or companies to engage in anti-competitive business practices (Fingleton, Fox, Neven, & Seabright, 2006). Effective competition policy is realized if trade reforms are accompanied by the creation of industry structures and competitive market. Hence, along with the creation of regional trading arrangements and bilateral partnerships, the policy focus both in the U.S. and Australia has shifted towards the enhancement and promotion of competition and level the playing field through the promotion of competition policy and competition law (Clark, 2007). On the surface, there appears to be much in common between competition policy in Australia and competition law in the U.S. Article 85 of the Rome Treaty, which prevent trade agreements that distort competition, and accordingly, agreements that fix prices, can be compared to section the US Sherman Act and the Australian Industries Preservation Act 1906, which prohibits abuse of dominant position, which prohibits agreements in restraint of trade, and which prevent monopolization. Australia and U.S competition policies also have common goals. Both protect the free flow of goods and advance the interests of consumers in a competitive market. Both seek to protect competitors’ access to respective markets, and protect seller freedom from coercion and consumer freedom of choice. This paper will discuss how Australia and U.S. approach competition policy. Description The competitive policy framework in Australia is being supported by the Competition and Consumer Act 2010 (CCA) and concepts such as concerted practices, facilitated practices or tacit collusion do not exist generally in competition law (Bruce, 2013). CCA has adopted a rules-based rather than a principles-based approach. In other words, it has attempted to define all forms of preventive conduct with great deal of specificity (Fingleton, Fox, Neven, & Seabright, 2006). This is in contrast to approach used in U.S. competition law. The Australia’s competition policy prohibits horizontal agreements between competitors such as cartel agreements and conduct that substantially lessen competition (Bruce, 2013). For example, in ACCC v Leahy Petroleum, petrol retailers exchanged price information regarding the sale of petrol in the Geelong region of Victoria (Fingleton, Fox, Neven, & Seabright, 2006). In this case, the High Court decided that there was not “arrangement, understanding or contract” between the two parties because the recipient was not required to act upon the information and the party providing price information was not required to provide the information (Bruce, 2013). This contrast with the position in U.S. where enterprises which receive pricing information from its competitor can be regarded as having engaged in a concerted practice if they accepted the information (Fingleton, Fox, Neven, & Seabright, 2006). The U.S. competition policy approaches require proof and agreement of effect that the conduct unreasonably restrains trade (Northrup, 2004). It is easier to meet test for “agreement” in the U.S. than in Australia. In U.S., if a contract between two parties is seen to restrain trade, a “rule of reason test” may be applied by the courts. It will be unreasonable if the anti-competitive effects outweigh the pro-competitive effects (Arrow, Bernheim & Douglas, 2011). U.S. regulators believe that facilitating practices, such as price exchange between competitors, make it easier for businesses to coordinate price or other behavior in an anti-competitive way. Analysis At the moment the Competition Act is the Australia’s principal legislative weapon that ensures consumers get the best deal from competition. But there are many areas in the economy that are immune from the Act: State public sector businesses, some commonwealth ventures, and some areas in the private sector, including the professions (Rees, 2004). In other words, competition policy in Australia is not working in ensuring the Australia’s market remains transparent and fair. For example, Australian Competition and Consumer Commission (ACCC) have not been given enough capacity to investigate into the behavior of major retail chains such as Woolworths in their dealings with their suppliers- including Australian farmers (Rees, 2004). Most of these retail chains that operate in Australia have been accused of issues relating to the treatment of suppliers that include misuse of market power as well as allegation of unconscionable conduct towards those suppliers. The current Australia’s competition policy focuses on determining whether or not a breach of the Competition Act has occurred. This requires ACCC to have extensive information collection process that ensures, if a case is prosecuted, the evidence that have been collected by ACCC will withstand scrutiny in court of law (Keogh, 2013). This means if unfair practices are perpetuated by major organizations such as unfair pricing, the victims- small companies or business- of those bad practices would most likely have suffered severe financial damage or gone broke before the ACCC initiated action to redress the situation (Clark, 2007). “The alternative approach that would have been taken by the U.S. competition policy would involved a series of preventative measures that would have been applied as the market become more concentrated as the risk of unfair practices increased” (Keogh, 2013). State owned enterprises compete with the private sector in a variety of markets and in a number of ways (Yasuda, 2006). In Australia, there is no competition neutrality as compared to the U.S. and this has given some government ownership businesses advantage which impend the ability of the private sector to compete on equal terms (Rees, 2004). In Australia there is no level playing field between state owned businesses and private owned businesses and this have made state owned businesses to gain international and domestic market share in large part because these businesses are able to enjoy financial support, regulatory privileges, tax preferences, immunities not generally available to their privately-owned businesses (Yasuda, 2006). In Australia, as compared to the U.S., these privileges are often reinforced with purchasing policies or discriminatory government market access (Keogh, 2013). Together, they give government owned enterprises a competitive advantage over private sector rivals. Therefore, for a level playing field to be realized in Australia, the Australian government should stop supporting government owned businesses. The argument for state aid or assistance given to state owned businesses in Australia is that it gives certain products or firms favored treatment to the detriment of other products or firms (Yasuda, 2006), State aid have disrupted normal competitive forces in Australia as compared to the U.S. Under the current U.S rules, an organization can be rescued once (Northrup, 2004); however, any restructuring program or aid given by the government must be approved as being part of a coherent and feasible plan to restore the firm’s long-term viability. CCA should realize that corporate restructuring a fact of life. There is a natural tendency for markets to consolidate over take through a process of vertical and horizontal integration.CCA should adopt a principles-based approach rather than a rules-based approach because the creation of a joint venture (Keogh, 2013), this generally has a positive impact on markets: firms usually become more efficient, competition intensifies and the final consumer will benefit from higher-quality goods at fairer prices Conclusion Competition policy as discussed in the paper has been seen as a key part of the development agenda both in Australia and U.S. Evidence from various literatures have confirmed that market competition has a positive effect on economic productivity growth and performance over a wider range of sectors (Aghion & Griffith, 2005). Other studies have also shown competition policy can sustain or increase competition across economies and within sectors. Reforms that remove anti-competitive regulations and open markets- such as statutory monopolies, price control, discriminatory treatment of certain firms, and restriction on the number of firms- lead to significant productivity gains (Rees, 2004). Barriers to competition are pervasive and harm productivity, innovation and growth. Fair competition matters for economic growth Fingleton, Fox & Seabright, 2006). Therefore, both the U.S. and Australia should help their domestic market to work better, by removing unnecessary distortions to competition policies, will lead to reforms in business environment (Aghion & Griffith, 2005). These factors make competition law and policy a priority for reform in Australia (Rees, 2004). Therefore, there is need to understand at policy levels in business sector, in government and by consumers, of the beneficial impact of effective competition policy and competition on an economy (Voigt, 2009). As demonstrated in both Australia and U.S, where competition law and competition policy is part of a well-regulated and open economy, it can help encourage both foreign direct investment (FDI) and domestic investment (Fingleton, Fox & Seabright, 2006). An effective competition policy allow a level playing field where it allow innovative new entrants which is an important role in the country’s development process, and promotes country’s growth. “The introduction of a competition law needs appropriate supporting policies, and effective enforcement” (Voigt, 2009). References Aghion, P & Griffith, R 2005, Competition and Growth: Reconciling Theory and Evidence, MIT Press, Cambridge, MA. Arrow, K. J & Bernheim, B 2011, "100 Years of the American Economic Review: The Top 20 Articles". American Economic Review 101 (1): 1–8. Bruce, A 2013, Consumer Protection Law in Australia. LexisNexis, Sydney. Clark, J. M 2007, "Towards a Concept of Workable Competition", American Economic Review 30 (2): 241–56. Demsetz, H 2005, “Industry structure, market rivalry and public policy”, Journal of Law and Economics Fingleton, J., E. Fox, D. N &, and Seabright, P 2006, Competition policy and the transformation of Central Europe, European Communities. Keogh, M 2013, “Current competition policy just does not cut it”, Australian Farm Institute, Retrived from . Northrup, C 2004, "American Economic Association". The American economy: a historical encyclopedia 2, pp. 9–10. Rees, R 2004, “Tacit Collusion” in Oxford Review and Economic Policy, Vol.9, No.2. Voigt, S 2009, “The Effects of Competition Policy on Development: Cross-Country Evidence Using Four New Indicators.” Journal of Development Studies 45 (8): 1225–48. Yasuda, N 2006, ASEAN Competition Laws: Current State and Future Perspectives, ASEAN Workshop: Making Markets Work, Bangkok. Read More