Allan, you have a remarkably high public profile in Australia and are known to most of the Australian population as ex-ACCC chair. Could you please give us a bit on your background and how you got into competition law?
I did degrees in law and economics at the University of Western Australia and a PhD in economics at Duke University. Then I was a research fellow at the Department of Applied Economics, University of Cambridge, where I was for a few years, where I wrote a book on how prices and wages were regulated in the UK in those years.
I returned to Australia and subsequently have divided my time roughly and equally between being an academic and a regulator. At first, I was a part-time member of many different regulatory bodies. But from 1989 until 2003, I was inaugural chairman of the Australian Competition & Consumer Commission from 1995 and, before that, of its predecessor bodies the Trade Practices Commission and the Prices Surveillance Authority. I subsequently spent 10 years as dean of the Australia and New Zealand School of Government, which is similar to the Kennedy School. After that, I have been involved in multiple inquiries.
Could you please briefly explain the Australian competition-law system, and what is unique about it?
The Australian system is essentially a prosecutorial system. It’s more similar to the U.S. system than the EU system in this respect. The ACCC has to prove the case in court, and private enforcement is quite active. One deviation from the U.S., however, is that you can get anticompetitive behavior authorized in advance by the ACCC on public-benefits grounds. That decision is then appealable to a tribunal.
The question could arise of whether this opens the floodgates to all sorts of public-benefits arguments. So far, the floodgates have not opened. I’ll discuss a recent example in a bit, but suffice it to say that the public-benefits exemption is rarely used.
Another characteristic of the Australian competition-law system is that it integrates competition, consumer protection (of the FTC kind) and, to a very significant degree, regulation. There’s also the prohibition in competition law on unconscionable conduct, that is enforced by ACCC. There is a prohibition on unfair contracts relating to classes of contracts, e.g., where the consumers sign up to a 50-page contract with some unacceptable provisions, that is also enforced by the ACCC.
As for regulation, the Australian competition-law system encompasses telco and energy, and other regulation. Here, the ACCC’s role is similar to the Federal Communications Commission and the Federal Energy Regulatory Commission in the U.S.
The ACCC is quite powerful. I was actually rated the third-most-powerful person in Australia when chair, and within striking distance of the prime minister who appointed me. However, the ACCC can’t affect anyone’s legal rights without a court order. On top of that, all decisions on mergers and authorizations can be challenged in court. If the ACCC blocks a merger, the firm goes to court and the ACCC has to prove its case.
You mentioned the possibility of public benefits overriding a prohibition of anticompetitive conduct. What sort of ‘public benefits’ have been considered in the past? Could public harms likewise tilt a decision toward prohibition? Can you tell us something about the recent Brookfield merger?
Climate change, health, and safety are the usual public benefits which are claimed, and thus far they have applied only on small matters that are technically anticompetitive and potentially illegal. A recent very unusual, much bigger-scale decision was to approve the Brookfield merger. The merger was deemed anticompetitive. However, there seemed to be major climate-change-related benefits in the transition to net-zero energy, and they were deemed to justify the merger. Also, although the merger was anticompetitive, it was not heavily so. In other words: had the merger been particularly anticompetitive, I don’t think it would have been exempted on public-benefits grounds. In general, I would say that, by and large, the authorization process of public benefits has not undermined the competition law.
There is a current review of competition law being led by the new Labor government. Somewhat controversially, the ACCC has proposed that there be a reverse onus of proof in merger cases. That is, the onus would be on applicants that the merger would not substantially lessen competition. Do you think this is justified?
I would like to take the opportunity to discuss the history of merger law, as it is relevant to my answer. The history is that, when the law started in 1974, there was an SLC [significant lessening of competition] test. In 1977, the Conservatives changed the test to dominance, meaning one-single-firm dominance. Then, the Labor government came back and changed it back to SLC. This seemed to be the right test but, in practice, there have been some problems in the way in which the courts have interpreted the words “substantial lessening of competition.” Judges have been a bit legalistic. They read every word, but couldn’t always figure out what every word of “SLC” (significant lessening of competition) meant, focusing on those words rather than on the economic concepts of market power and lessening of competition. The word “competition” is seen as a conduct or behavior test.
Courts are allowing rather more mergers. The ACCC in the 1990s got ahead of the legal community, which was caught napping. Since then, there’s been a big improvement in the skills of the legal community, so that they’re much harder to defeat in litigation.
The SLC is problematic for another reason in Australia. It means the regulator has to prove in a court setting what’s going to happen in the future, which is an inherently difficult task.
The ACCC has thus argued that, in a lot of mergers, nobody knows what the outcome will be. [Judge Frank] Easterbrook used to say: “when you don’t know, give the market the benefit of the doubt.” However, some say that, because the applicant in a merger has more knowledge than the regulator, the onus should be on the applicant. The obvious reverse argument is (fundamental in a legal system) that the onus should be on the regulator, and that there are all sorts of harms associated with the regulator being able to reverse the burden of proof. Of course, the legal and business community is absolutely against reversing the burden of proof.
A possible outcome is that there will be some changes in the law that will be a little bit less than a blunt reversal of the onus of proof. Personally, I am broadly in favor of the reform, or something like it. There are too many cases being lost due to fanciful interpretation of the term “substantial lessening of competition.” In addition, the whole atmosphere has been affected, like in the U.S., by an apparent increase in concentration. And since the ACCC has been having problems proving cases, it has been pushing very hard for reform. It’s taken seriously, especially by the new Labor government.
Which industries have become significantly more concentrated in the past few years? Do you know if this concentration has resulted from increased merger activity or from organic growth (or both)?
The Australian economy is very different from that in the U.S. and businessmen who operate in both markets will confirm that. The Australian economy is much less competitive than in the US. We have a much smaller economy and it is dispersed over a vast continent. Merger law was also late to arrive, and it inherited a concentrated industry structure.
Many markets are dominated by a small number of providers, including banking, supermarkets, mobile telecommunications, internet-service provision, energy retailing, gas supply and transport, insurance, pathology services, domestic air travel, internet search and social-networking services. There is much research that indicates a gradual further increase of concentration in recent years. As indicated, I would tend to emphasize that we have an inherited structure of high concentration.
The review also asks if there should be more emphasis on structure and structural presumptions in merger control, rather than focusing on the SLC test. Do you have any thoughts on this?
Experience shows that Australia’s law courts find it much easier to grapple with questions about structure than about conduct.
From 1995 until about 2007, Australia had a full-on national competition policy (NCP). Can you tell us a bit more about the NCP?
This policy followed an opening up of the economy to trade and investment and to considerable deregulation domestically. It was recognized that there were major government-imposed restrictions on competition. Australia didn’t think advocacy was enough. I and others were skeptical that the U.S. advocacy model where the regulator advances some arguments against anticompetitive arrangements is adequate to deal with the major restrictions on competition that arise from government actions at all levels of government—national, state, local—and across all sectors of the economy, and that are driven by powerful business and other interests. You need something bigger to deal with that.
Political leaders agreed that national, state, and local laws, including current ones, would not be permitted unless it could be shown that it was in the public interest and couldn’t be achieved in a less anticompetitive way. At some point, this became almost a religion. Evidence showed that this gave a big boost to productivity. The government has not not revoked the NCP, but reform fatigue set in, and the policy faded away. There is now a likelihood of a serious revival of that policy.
What were the main findings of your recent review on behalf of the Australian Council of Trades Union concerning price gouging? Do you expect any government action following this?
There’s been heavy publicity about an enquiry about the cost of living in Australia, which I participated in. I attributed the high prices to a lack of competition and other market imperfections—e.g., a lack of information, switching costs, etc.
The report emphasized the “rocket and feather” effect. When costs go up, prices go up like a rocket. When costs fall, they fall slowly like a feather.
Monopolists can charge whatever they want and so can duopolists, as long as they don’t illegally collude. The government does things that put prices up too. In discussions on inflation, we tend to leave out discussions on pricing, but pricing has made a contribution to inflation.
Needless to say, the public in Australia is very concerned about high prices. I believe this is a concern in every country.
It would be good for the international antitrust community to at least talk about that problem. The standard answer is “leave it to the market,” but that doesn’t go down well with the public.
You mentioned that the government has also taken measures that increase prices.
A recent spectacular example concerned international airfares. Prices more than doubled in 2023 compared to any earlier years. Qatar Airways offered to provide much more capacity to the market. Prices would have fallen 30%. The government rejected the offer, possibly taking account of the interests of Qantas. There are many, many other examples of government actions that put up prices.
One challenge I would like to put to the international antitrust community is to consider how to deal with the worldwide public concern about high prices. If a member of the public is unhappy about a particular high price, is there anywhere in government it can go to to complain, to have it looked into, to see if it is legitimate, etc.? The only answer that person would be given is to speak to the competition regulator. However, they will find that the competition regulator hasn’t any interest in high prices unless there is evidence of illegal collusion. Otherwise, that member of the public is told to go away.
And monopolists and dominant firms, unless regulated, are free to charge the maximum monopoly price they like. Duopolists can charge the earth as long as there is no illegal collusion. And governments can take action that puts up prices heavily without there being any law, or anybody that looks into these things.
Some people will say that we shouldn’t worry, that we should leave these things to the market. However, many people do not like that answer. They say there is a gap in government policy. It does not enable some kind of independent scrutiny of high prices and their causes, which are typically a lack of competition; or imperfectly functioning markets, such as information-deficient markets; or high switching costs. Should we be setting up mechanisms to address this?
You are chair of the Public Interest Journalism Initiative (PIJI). Could you tell us about this? What’s it about? How does it link to competition policy? In particular, how does it link to Australia’s proposed news-media bargaining code?
The Public Interest Journalism Initiative believes there has been a serious decline in the amount of journalism about public matters, in Australia and globally, and believes there should be government initiatives to support public-interest journalism, which is a public good characterized by market failure.
The media bargaining code emerged following considerable pressure from media interests, including news corporations, for protection from the claimed harmful effects of the internet and Facebook and Google on their advertising revenue and their viability as media.
The ACCC was tasked with doing a major study, which recommended an arbitrated solution to the conflict between the media and Facebook and Google. They added a chapter on a bargaining imbalance. And they used that to justify what turned out to be a big payment. I think that determining the amount of imbalance between the digital platforms and the media could have been probed more deeply, though it could also be argued that was something to be resolved by the arbitration arrangement that was proposed.
There remains the very interesting question about the direction and size of value exchange. The media receives a benefit from the digital platforms drawing attention to their stories and the digital operator also reaps a benefit from having news on its platforms.
Ultimately, by way of a political compromise, the legislation establishing a media bargaining code, although enacted, was not given effect in practice. That is, the declaration provisions were not applied. In return, Facebook and Google committed to contributing money, thought to be in the order of A$200-$300 million, to be distributed across the Australian media.
If not to address a real bargaining imbalance (assuming the government should step in to address such imbalances), what other reason could there be for the existence of the media bargaining code? Could this be a case of successful rent seeking by the media industry?
My own key interest is in the obvious decline of public-interest journalism. That is, any journalism that relates to public matters, no matter whether it is on the right or the left or, in some sense, neutral. There has been a particularly sharp decline in regional news availability. Our research has shown there are huge “news deserts” in Australia. That is, large areas of the country where there is simply no reporting of local courts, local councils, community matters, community events, sports events, and all the things that bear on community cohesion. In the capital cities, there has also been a noticeable decline in the number of journalists employed in newspapers, radio, and TV. There is, in other words, a good public argument for supporting journalism. Whether Facebook and Google should contribute has become a political question and is right now a part of the political agenda.
Is anyone suggesting that, if journalism is in the public interest, it should be subsidized by taxpayer money rather than by specific private companies, like Facebook and Google? Further, don’t these companies also help journalism by making their content available through online search and social media?
These are the arguments put forward by Facebook and Google and others, and I wish them the best of luck in the public debate, although I would mention that the current public debate is starting to talk about bringing in other digital platforms and players. As to the point that these companies help journalism, that is true. Talk to a media company, however, and they’ll say that, on balance, they hurt them more than they help them. A lively debate is going on about this. I do think there is scope for much better empirical work about the value exchange and which way it flows, but it needs to be truly independent and credible.
The ongoing Digital Platform Services Inquiry (DPSI) has also made recommendations based on the premise that there is an imbalance of power between digital platforms and their business users. Is there anything you can tell us about the DPSI? Do you think a specific regulatory regime is justified for digital platforms?
My review is that, regarding economic analysis of digital platforms, the economics profession at the top has a fairly good understanding. At the level of regulators, and in particular what they should be, nobody is clear about that. All simple answers are wrong. Self-preferencing and the likes are just small issues chipping away at the edges of digital platforms.
