Monopolies by ‘creeping acquisition’ to be legislated against

By Legal Eagle

Hot on the heels of the collapse of the ABC Learning empire, the Federal Government has heralded plans to overhaul unfair competition laws dealing with ‘creeping acquisition’. As I noted in my post on the issue, one of the difficulties faced in relation to the ABC Learning collapse is the large proportion of market share held by the group in childcare centres, and the lack of choice of other options for many parents. However, the issue had already come to the attention of legislators and the ACCC via supermarket monopolies.

A recent submission by the ACCC to the Federal Government on the issue defines ‘creeping acquisition’ as follows:

The term ‘creeping acquisition’ encompasses a range of situations. While it can refer to a series of acquisitions over time that individually do not raise competitive concerns, but when taken together, the acquisitions have a significant competitive impact, the term creeping acquisition also refers to a firm with existing substantial market power enhancing its market power through one (or more) acquisitions which individually do not substantially lessen competition.

The latter is the primary concern of the ACCC. The present provision to deal with acquisitions that would lessen market competition is s 50, Trade Practices Act 1975 (Cth). That section prevents an acquisition that would lessen market competition by applying a test of whether the likely state of competition with the acquisition would result in a substantial lessening of competition, as compared to the likely state of competition without the acquisition. It referrs to an individual acquisition rather than multiple acquisitions. There is thus no real scope to consider whether the acquisition is one of a string of acquisitions which lead to a concentration of market power.

The ACCC favours a “substantial market power” provision which would prevent a firm with substantial market power from gaining further power through other acquisitions. The alternative model is an “aggregation” model, which would consider the latest acqusition of a company in the light of other acquisitions by the company in question within a specified time period, and decide whether the latest acquisition would be likely to substantially lessen competition.

It seems the government is favouring a “hybrid” model combining the “substantial market power” model and the “aggregation” model. The concern from some quarters is that if the government comes down on companies in a manner which is too heavy-handed, then the net effect may be to lessen productivity and competition (by preventing large efficient companies from taking over small inefficient companies). But the ABC Learning debacle starkly illustrates the problems which occur when one company gets too much market power by slowly buying up smaller operators. Ironically, that acquisition of market power was largely funded by government subsidies in the first place…

I will be interested to see what the draft provision will look like.

16 Comments

  1. Posted November 17, 2008 at 8:18 pm | Permalink

    I think this defines shutting the gate after the horse has gone, remembering all the while who was responsible for opening the gate in the first place. Beautiful.

  2. Posted November 17, 2008 at 9:26 pm | Permalink

    (by preventing large efficient companies from taking over small inefficient companies).

    Perhaps maybe SL. In relation to child care economies of scale may not be that relevant.

  3. Posted November 17, 2008 at 10:16 pm | Permalink

    Personally I don’t give a toss about monopolies of diamonds, yachts, soap operas or doof-doof music.

    Perhaps the ACCC should treat classes of goods or services differently based on how essential that item is – or does it do that already?

  4. Sinclair Davdson
    Posted November 18, 2008 at 9:48 am | Permalink

    The argument about ABC Learning is quite appropriate. The business model that underpinned ABC has just failed. In other words there is no case for government intervention, the market has cleared away an inefficient expansion model. By having the ACCC regulate against that business model means that a large ineficient firm would still be in business.

  5. Posted November 18, 2008 at 5:26 pm | Permalink

    shutting the gate after the horse has gone, remembering all the while who was responsible for opening the gate in the first place.

    I think that’s a pretty deft definition of economic policies in general. 🙂

  6. Sinclair Davdson
    Posted November 18, 2008 at 6:02 pm | Permalink

    the ACCC would have stepped in once it became clear that it was dominating the market.

    But it wasn’t clear they were dominating the market – they had a large chunk of the private chid-care market but not the overall market. Also I just have no confidence that the government know when to intervene in business – if they were any good we’d all be happy to leave our children in their care.

  7. Posted November 18, 2008 at 7:14 pm | Permalink

    LE said: “I’m surprised there aren’t more typos…”
    Hah! When I had my daughter in a sling and putting together sysadmin and similar scripts, a typo meant disaster! (Hint: don’t use a powerful tool with single character command when feeding!!)
    I was very very careful.

  8. Jacques Chester
    Posted November 18, 2008 at 8:38 pm | Permalink

    Especially if your newborn discovers -, r, m and f.

  9. Arjay
    Posted November 20, 2008 at 6:42 pm | Permalink

    The ACCC is a paper tiger.It has ignored the preditory pricing activities of Woollies and West Farmers and also the tactics of Frank
    Lowy who give low rents to the big boys and screw the small trader who pays 10 times the rent per sq m.
    We have the highest food inflation in the Western World and all the ACCC has to do is put in train legislation like they have in Canada,but both Howard and Rudd had to buckle to the donations of the large corporates.

  10. Jacques Chester
    Posted November 22, 2008 at 11:54 am | Permalink

    … Frank Lowy who give low rents to the big boys and screw the small trader who pays 10 times the rent per sq m.

    There’s nothing dodgy about this, it’s business. Lowy needs big stores to attract the foot traffic that justifies a shopping centre. The big chains rent a large area but have low profits per sqm.

    Just as the small stores cross-subsidise the big stores rent-wise, the big stores are cross-subsidising the small stores with customers.

  11. Arjay
    Posted November 22, 2008 at 5:47 pm | Permalink

    Jacques,just talk to many of the small traders who work under the Lowy regieme.Westfields dictates the hours and days worked,how much and when a shop is fitted out.The small trader is being screwed.Lowy uses the power of the large corporates like Westfarmers to dominate the market.

    Just recently Westfarmers dictated to it’s suppliers that they should only use Fox transport a more expensive logisitics system to transport goods.Since Westfamers have such a market dominance,the wholsale suppliers have no choice.What secret agreement has Fox done with Westfarmers.

    Dairy farmers and growers get paid a pittance in comparision to the retail price,yet they do all the hard work while the CEOs,Directors and shareholders clean up.Our fuel is now being retailed by them.Grog is not far behind.What happens when a cartell dominates?They have an unstated price below which they will not go.It is all done by secret agreements.

    Unless we get real competition into the market via fairer rules,we the people of Aust will become serfs in our own country.

    No,this is not business.There must be fair rules put in place to give the consumer the fairest price.

  12. pedro
    Posted November 24, 2008 at 12:43 pm | Permalink

    Arjay, I guess that is why people never lease shops in Westfield centres, it’s impossible to make a buck there?

    Luckily for me out suburb still has some corner stores and mini shopping centres to keep the majors honest. Sure everything is 50% dearer, but at least it is competition.

  13. pedro
    Posted November 24, 2008 at 12:48 pm | Permalink

    “But the ABC Learning debacle starkly illustrates the problems which occur when one company gets too much market power by slowly buying up smaller operators. ”

    I doubt there would be many industries with lower barriers to entry. The only thing stopping anyone setting up is getting a site for a centre and a DA.

    “Ironically, that acquisition of market power was largely funded by government subsidies in the first place.”

    No, it was funded with debt. All parents with children in care get a subsidy, which they can spend at any centre they can get their kids into.

    We need more ABCs, just better run and without so much debt. I’d much rather see a few decent sized operators than lots of small businesses and community centres. The big guys will have the best opportunity to compete on quality of facilities and to cope with start up costs and slow periods when profit is down or losses are being made.

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