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Competition Policy | Overview

 

Overview and application

The policy of competition law - actual and desired - has been the subject of much debate in Australia and elsewhere. Although it is generally accepted that competition policy is designed to promote competition, the debate has focussed on whether competition should be promoted per se or whether it should be promoted only where it produces economic efficiency. In Australia, as in other jurisdictions, debate continues about the extent to which broader social goals can be facilitated within competitioon policy and the extent to which (if at all) competition policy should be directed toward the benefit of any particular interest group (such as competitors; small business).

Globally, the trend has been to view competition policy as a mechanism for the promotion of consumer welfare, although there is not common ground on what this means or how it is to be assessed. Typically, however, it is viewed as economic efficiency (predominantly allocative efficiency). For discussion and critique of the extent to which competition policy has been directed to purely (or at leaset predominantly) economic goals see the reading page. See, in particular, the discussion by Prof Eleonar Fox (External linkEleonor Fox, 'Against Goals' (2013) 81 Fordham Law Review 2158 and External linkEleanor Fox, 'The Efficiency Paradox' (July 2009, Law & Economics Research Paper Series, Working Paper No 09-26))

Repeated reviews of Australian competition policy has emphasised that the policy is designed for the protection of competition not the protection of competitors. The objects clause in s 2 of the Act provides that the object of the Act (which includes consumer laws in addition to competition laws) is

'... to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.'

This suggests that there is no particular focus on consumer welfare but that competition is to be promoted for the 'welfare of Australians' more broadly.

The insertion of this objects clause followed the Hilmer Review which noted:

Competition policy is not about the pursuit of competition per se. Rather, it seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives. These accommodations are reflected in the content and breadth of application of pro-competitive policies, as well as the sanctioning of anti-competitive arrangements on public benefit grounds.

More recently, the Harper Report noted

Competition policies, laws and institutions should promote the long term interests of consumers.

When assessing whether Australia's competition laws were fit for purpose, the Panel asked (at page 9; emphasis added):

  • Does the law focus on enhancing consumer wellbeing over the long term?
  • Does the law protect competition rather than individual competitors?
  • Does the law strike the right balance between prohibiting anti-competitive conduct and not interfering with efficiency, innovation and entrepreneurship?
  • Is the law as clear, simple and predictable as it can be?

See also the policy page for other definitions/explanations of competition policy

 

Object of the Act (including objects clause)

There was no objects clause in the original Act, but in his Second Reading Speech, then Attorney-General, Senator Lionel Murphy, stated that its purpose was 'to control restrictive trade practices and monopolies and to protect consumers from unfair commercial practices.' (Parliamentary Debates, Senate, 30 July 1974, page 540). At page 548 the purpose of the Act was also described as being 'to promote efficiency and competition in business, to reduce prices and to protect all Australians against unfair practices.' (see French 2004). Justice French has observed that '[b]eyond that very broad statement of intent and the other statements referred to earlier there was not much in the way of a coherent policy framework or theory to explain the presence in the one statute of its seemingly disparate measures.' (French 2004)

In Qld Wire the Court referred to competition in the context of the Act as being a means to an end. Justice French explains:

Competition is not so much a goal in itself as a means to an end. What Mason CJ and Wilson J said of s 46 in the Queensland Wire case could be applied to all of the provisions of the Act designed to protect competition:

‘… the object … is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end.’

... The Hilmer Committee said that competition policy ‘seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives’. The protection of consumers as a group was seen as an area distinct from competition policy despite its acknowledgment ‘that both policies benefit consumers and that some consumer protection provisions improve the efficiency of markets’ [p XVI and fn 3]. The Dawson Committee, focussing upon Pt IV of the Act, acknowledged that competition is not an end in itself but ‘an important means whereby an economy can achieve economic efficiency’. This it linked to the ultimate outcome of sustaining ‘economic welfare’ [p 33]. (French 2004 at para 7)

The current Act contains an objects clause in s 2.

'The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.'

This clause was inserted by Competition Policy Reform Act 1995 (Act 88 of 1995)

 

Competition Policy Reviews

See further the reports page

Hilmer Review (1992-1993)

National Competition Policy CoverA major review of competition policy in Australia took place in 1992-1993 (Hilmer Review) which included a number of statements on competition, including:

[Page xv] ... "the engine which drives efficiency is free and open competition". ...

[page xvi] Competition Policy
Competition policy is not about the pursuit of competition per se. Rather, it seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives. These accommodations are reflected in the content and breadth of application of pro-competitive policies, as well as the sanctioning of anti-competitive arrangements on public benefit grounds.

...

Harper Review (2014-2015)

A major review of competition policy in Australia began on 27 March 2014 and reported in March 2015. The Government is currently consulting on the final report.

The Issues Paper released as part of the review stated, in part:

...For the most part, more competitive markets lead to greater efficiencies in the use of scarce resources. The benefits of competitive markets include lower resource costs and overall prices, better services and more choice for consumers and businesses, stronger discipline on businesses to keep costs down, faster innovation and deployment of new technology, and better information allowing more informed consumer choices. Competitive markets are dynamic and innovative, which can benefit Australians both now and into the future.

Competition policy seeks to protect, enhance and extend competition. ...

[source: The Australian Government Competition Policy Review]

In the Final Report the Panel stated (page 7)

Competition policy is aimed at improving the economic welfare of Australians. It is about meeting their needs and preferences by making markets work properly.

In the Panel’s view, competition policy should:

  • make markets work in the long-term interests of consumers;
  • foster diversity, choice and responsiveness in government services;
  • encourage innovation, entrepreneurship and the entry of new players;
  • promote efficient investment in and use of infrastructure and natural resources;
  • establish competition laws and regulations that are clear, predictable and reliable; and
  • secure necessary standards of access and equity.

 

National Competition Policy

Following recommendations by the Independent Committee of Inquiry on National Competition Policy (Hilmer Committee) the Council of Australian Governments (CoAG) implemented the National Competition Policy. View National Competition Policy page.

See also

 


Protection of special interests

It has been observed that since its enactment, 'there have been ongoing pressures to broaden or diversify that general [consumer welfare] objective in favour of the protection of particular classes of competitor ... There has also been ongoing pressure to qualify or limit the application of the Act with respect to particular sectors of the economy' (French 2004 at para 8)

 

Authorisation

Public Benefit Authorisation

A relatively unique feature of Australian competition law is the ability for parties to seek 'authorisation' on public benefit grounds for conduct that would otherwise contravene the competition legislation. This suggests that in some circumstances at least, public benefits beyond those generated by competition may be considered more desirable than competition per se. When recommending amendment of authorisation test (to remove the requirement that a public benefit be a 'substantial' benefit), the Swanson Committee stated (in 1976):

‘However, if in a given case it can be shown that public benefits, ie,not merely benefits to the parties to the restrictive conduct, are available, and that those benefits outweigh the benefits to the public foregone by the absence or restriction of competition, then that conduct should be permitted to continue. In other words, we still favour the maintenance of the primary position that competitive behaviour is to be preferred, but that many who engage in restrictions of competition should be able to obtain an authorisation if they can show that on balance there are public benefits that outweigh the effects on the public of the restrictions on competition.’ [at para's 11.14 and 11.15)

Similarly, the Hilmer Committee observed:

‘Competition policy is not about the pursuit of competition per se. Rather it seeks to facilitate effective competition to promote efficiency and economic growth while accommodating situations where competition does not achieve efficiency or conflicts with other social objectives. These accommodations are reflected in the content and breadth of application of pro-competitive policies, as well as the sanctioning of anti-competitive arrangements on public benefit grounds.' (at p xvi)

In relation to authorisation Justice French has observed:

[para 40] '... While Pt IV of the Act is directed to the maintenance of workable competition, the authorisation provisions recognise that legitimate public benefits can flow from conduct otherwise prohibited. They recognise that competition is not ‘a theory of everything’ when it comes to the public interest. Or as a famous American cosmologist once remarked, ‘There is more to everything than meets the eye’. The political pressures to amend the Act in various ways in the interests of particular groups such as small business, exemplify that reality.'

In Re 7-Eleven Stores the Tribunal stated:

‘We cannot rely upon the functioning of competitive markets to deliver everything ‘of value to the community generally’.

This was quoted with approval by the Tribunal in Qantas Airways Ltd [2004] A Comp T 9.

Similarly, French J has observed that the authorisation process

'enables social objectives ranging well beyond the realm of economic efficiency not only to be taken into account by the regulator but also to be defined by it in determining whether or not there is a benefit. Moreover the regulator is entitled to weigh the benefit and thus effectively assign non-justiciable priorities or weightings to various classes of benefit which may have something or nothing at all to do with the competition objectives of the Act. In the process the ACCC may negotiate by attaching conditions to its authorisations effectively fine-tuning to achieve satisfactory levels of public benefit or to reduce the risk of anti-competitive detriment. ' (French 2004 at para 11)

 

The common law doctrine

Reasonableness and legitimate interests

All agreements in restraint of trade are void unless:

  • they are reasonable in the interest of the parties (onus on party relying on restraint); and
  • they are reasonable in the interest of the public (onus shifts to person seeking to strike down restraint to demonstrate they are not reasonable in the interest of the public)

When assessing reasonableness the courts will first consider whether there is a 'legitimate interest' or interests that require protection and, if so, will assess whether or not the restraint does not more than is necessary to protect that interest; if the restraint goes beyond what is necessary then it will not be considered reasonable.

A wide range of interests may be considered legitimate, including protecting trade secrets and protection of business goodwill, and even the creation or maintenance of an even sporting competition (see, for example, External linkAdamson v New South Wales Rugby League Ltd (1991) 31 FCR 242). However, mere protection against competition does not constitute a 'legitimate interest' (see External linkVancouver Malt and Sake Brewing v Vancouver Breweries [1934] AC 181)

Time for assessment

The time for assessing the reasonableness of the restraint is the date the restraint was imposed; reasonableness is not assessed at the time the restraint is sought to be enforced or is challenged. See, for example, External linkAdamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 per Justice Gummow:

‘But there always remains the basic proposition … that the reasonableness of a restraint of trade must be tested, not by reference to what the parties have actually done or intend to do, but what the restraint entitles or requires the parties to do … in my view it was not the case that the issue of reasonableness of the restraint was to be determined by looking to the manner in which from time to time it operated in practice or might operate in practice. …’

Severence

Parties will frequently draft restraint clauses to provide for different levels of restraint, in the hope that if one or more restraints are found unreasonable, others may nevertheless survive. These are known as ladder clauses and can be effective, provided they are not uncertain (by reference to normal contractual principles) and provided that the parties have made a genuine attempt to define a reasonable restraint and not left it to the court to 'make their contract for them. The more numerous the restraints and/or combinations of restraint involved, the more likely the parties have failed to make a genuine attempt to define the protection. See, for example, External linkLloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505.

Note, the position has been altered by legislation in NSW - see below.

 

Cases relating to Competition Policy

See cases page.

 

Books and articles relating to Competition Policy