Dancing around the effects test. Will business or the consumer win?
Whether you’re in small or large business, there is every chance you’ve heard something about The Harper Review and one of its key recommendations - the introduction of an ‘effects test’.
No? Well, the effects test is a proposal to prevent large companies from “purpose or likely effect of substantially lessening competition.” While this paints with fairly broad strokes: Australia is a country with (effectively) two supermarkets, two newspaper publishers and four banks.
This is actually the crux of the issue. With a business environment that is so compressed around a handful of main players, there is a high risk of these operators using their market power to the detriment of potential competitors. This is what the effects test attempts to address, and is something that many consider crucial given that Australia is one of the few modern economies without such protections, and the resultant lack of choice for consumers is there for all to see.
This didn’t stop the Business Council of Australia (BCA) getting its nose all out of joint in response to any suggestion that the effects test could become a reality. In fact, it ramped up the rhetoric despite perceptions that even with the effects test there would be very few new players willing to take one of those giants all the way to the High Court to maintain access to market. The risk looks just too great. Here’s the BCA’s take on the issue:
Don't back the Harper Review's anti-competition effects test - prices will rise and consumers will suffer. @TurnbullMalcolm @Bowenchris
— BCA (@BCAcomau) September 15, 2015
Not much doubt in the minds of Ms Westacott & Co there.
However, the BCA’s tweet fits with the accepted definition of ‘competition’. In a competitive market, the aim is to gain access to consumers through the provision of a perceived benefit that, in turn, is to the detriment of your competitors. This is the true essence of competition.
What the effects test does is potentially limit these activities which might negatively impact consumers. This is the key point that the BCA has made and its one that is also valid. Its also interesting to note that the effects test is just one of 56 recommendations from The Harper Review (of which the government has decided to accept 44) and the one which appears to be causing the most stir. It’s certainly an interesting outcome from a process predicted to be the biggest shake-up in Australian competition law in over a generation.
Not quite, it would seem. Especially since the Goverment has blinked by putting off any decision on the implementiion such a regime until well into 2016.
Anyway, back to the small matter of the effect test. As with all public policy, the dark art is ensuring that everyone is happy enough to the point of accepting the position, although they feel it didn’t go far enough. This outcome is typically proof that the balance is right and, for the effects test and the remainder of The Harper Review, remains the challenge for Prime Minister Malcolm Turnbull and Treasurer Scott Morrison as they settle into the new roles.