LAW TOPIC

Law Topic

Law Topic

The provisions of Part IV of the Act prohibit various trade practices that tend to prevent or lessen competition in an Australian market for goods and services. These provisions are at the heart of the Act. Since 1974, they have been instrumental in shaping the Australian economy. They lay down rules which, as interpreted by the courts from time to time, restrain anti-competitive behaviour and promote competition in the market place.

Section 2 states that the object of the Act is to:

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

Although the Act provides no further guide to the welfare of Australians, it is apparent that the Act is concerned primarily with economic welfare. This may be shown in a variety of ways. In economic terms, welfare will be enhanced by rising living standards in the form of higher incomes in real terms and an increase in consumer choice, by sustainable high economic growth, and by a lower unemployment rate. These benefits flow when human and other resources are used more efficiently to increase productivity and to maximise returns on investment. Competitive markets are the key to economic efficiency.

In a relatively small economy like Australia, the misuse of market power can be particularly detrimental to competition. The competition rules in Part IV of the Act seek to restrain conduct that tends to lessen competition. Thus, anti-competitive agreements or arrangements amongst competitors are proscribed, as are mergers between competitors that would have the effect of substantially lessening competition in a market. Where a corporation has acquired market power, the Act protects consumers and other businesses from its misuse.

Both anti-competitive and pro-competitive conduct may result in changes in the structure of markets, notably by the exit of individual businesses. Part IV seeks to prevent conduct that may lessen competition, not to protect less competitive businesses. The distinction is an important one. However, some of the submissions made to the Committee in support of changes to Part IV appear to conflate these two objectives.

Competition is an important mechanism for achieving the advances in efficiency and productivity that are essential to enhance welfare. Competition creates an environment that provides incentives and disciplines for continuing improvement. In a competitive market, each participant seeks to constrain costs to maintain its position in the market and achieve some advantage over its competitors. Business decisions made in response to competitively determined prices direct resources within the economy to where the best opportunities lie. Ultimately, consumers benefit as increases in productivity are reflected in lower prices in the short term or through greater choice in the longer term. Their welfare is enhanced.

Greater competition in Australian markets and higher productivity have been an essential part of strong growth in the economy over the past decade. In the second half of the 1990s, productivity increased at an annual rate which was substantially higher than the average annual rate recorded since the 1960s. During the past decade economic growth has averaged around four per cent per annum and ...