Viktor,

Your approach to these issues is astonishingly simple-minded.

For a start, the ACCC does not and will not have price-fixing powers, as you imply. Your theory about "fair price" is no more than theory and it's irrelevant anyway.

"Competition" is not defined in Australian "competition" law. However, if you are trying to mount a case for the untrammelled use of market power by the major chains - in the most highly concentrated retail grocery industry in the world, where Woolworths and Coles have about 80 per cent of the market - then you had better explain how competition is enhanced by reducing the number of competitors. The trajectory of the retail grocery sector since the mid-1970s has been towards greater and greater market share and market power for Woolworths and Coles.

The exception to this has been the growth of the German retail chain Aldi, which the UK Competition Commission does not regard as a direct competitor for full-line supermarkets, but rather a "limited assortment discount store". In any case, Aldi is so big internationally that it is bigger than the entire Australian market, so it has its own competitive advantages.

Market share growth has occurred not because the duopoly is cheaper or more efficient. It has happened because they have been free to use their market power to force down the prices they pay suppliers.

The assertion of market power by the major chains is not limited merely to the goods they sell off the shelves. They also force down the prices they pay for in-store consumables, for rents, for electricity, for refrigeration equipment and maintenance, for uniforms, for transport, and so on, to the point where their financial advantages are huge even before the store opens its doors.

Those circumstances may appear to result in lower retail prices for some products in the short term, but "specials" are advertised while price increases are not and the only winner is the supermarket.

[cont.]

[cont.]

Competition law until now has required that misuse of market power had to be proven by demonstrating that the perpetrator had the "intent" of bringing about a substantial lessening of competition. Without a "smoking gun" document to prove intent, that has proven impossible in practice.

The effects test will be another matter entirely.

There are numerous local markets throughout Australia where the effect of misuse of market power is plain to see: Maitland (NSW), Bright (Victoria), Churchill (Victoria), and Shearwater (Tasmania) are four that come to mind, but there have been many others.

The pattern is that one of the major chains acquires a site, builds a supermarket far bigger than the population of the local market would justify, then operates the supermarket at cost or below for years, cross-subsidised by the rest of the chain.

Meanwhile, pedestrian and vehicular traffic patterns change because of the new store and/or parking spaces. Not only do direct competitors (supermarkets, convenience stores, butchers, bakers, etc.) fail because of the presence of the larger player which does not have to make a profit from day one, but businesses which are not direct competitors (women's clothing, giftware, chemists, etc.) also fail because of the reduced flow of traffic.

That is the effect which may - I say may, because the ACCC has a very problematical history of non-enforcement of competition law - result in the slowing or reversal of market share growth by the chains and the decline of genuine competition.

The major supermarket then is free to increase prices at will, so in the longer term, the customer is not better off, perhaps worse off. The same pattern can be seen in petrol retailing.

Good points Calwest, I'll ad that raw unadulterated capitalism is as flawed as socialism. Capitalism works best when there is a level playing field with plenty of players. Organisations like the ACCC should have limited but real powers to ensure that this is the case.

Also despite the name the Australian Taxpayer alliance is just a front for Menzies house. The real Menzies would be turning in his grave.

Well CW has said most of it and ably completed by Cobber!
Rhrosty.

I’m in Vladimir’s camp. Government interventions in functioning markets (and even non-functioning markets) will almost always/always lead to a net loss of community benefits and to incentives to invest, work and innovate. The “effects” approach is absurd, all economic activity has attendant effects, some will gain, some will lose, to constrain businesses to operate in such a way that some nebulous, unknown effect on someone somewhere might be avoided is absurd. The extension of the ACCC’s ambit, particularly when it has an interventionist head of modest abilities (I’ve worked with Sims in the past) is a mistake, hard to believe that the Libs would go for it.

Faustino,

I'm always amused by economists' child-like commitment to their theories, rarely supported by real world facts.

You say:

'The “effects” approach is absurd, all economic activity has attendant effects, some will gain, some will lose, to constrain businesses to operate in such a way that some nebulous, unknown effect on someone somewhere might be avoided is absurd.'

But the anti-competitive effects of a big supermarket opening in a small local market is not nebulous at all. It's very real and destroys the businesses of people who have invested their money there, paid their rates and taxes and employed people, often for decades. Where there were two or three grocery retailers competing, the town ends up with one big retailer and a lot of empty shops in the main street.

The actual impacts in many local markets in Australia have been negative for the people in those markets: competition is destroyed and there are few, if any, constraints on increasing prices. The town is left with one big grocery retailer, higher prices and no other options, except, perhaps, to drive to the next town to shop for groceries, liquor, petrol and other things. Despite your theories, that is not an improvement, from any perspective.

Your gratuitous insult to the ACCC chairman, Rod Sims, by the way, suggests only that he got a promotion and you didn't.

And you still need to answer that simple question: how do you enhance competition by reducing the number of competitors?