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A trust-busting wind is blowing

As populism continues to sweep through western democracies, Australian regulators and policy makers must tread warily. Pressure for more interventionist competition policies is growing and failure to maintain a dispassionate and rigorous approach could have dire consequences for the country’s economic performance and international competitiveness.

The emergence of populist political figures and movements has been a defining feature of the polity in many western countries over the last few years. The policy focus of populist movements is usually outward – on nationalist foreign policies, restrictive immigration policies and protectionist trade policies. However, a more interventionist domestic competition/antitrust policy is often the other side of the same populist coin.

Populist competition/antitrust reform proposals are often rooted in economic hardship or anxiety, which leads voters to see big, prospering businesses as exploitative and benefitting from a rigged system. While this may sometimes be true, it is assumed to be the case in the populist view. However, big is often efficient and well-functioning market economies rely on the incentives created by the profits to be made in success. Competition is also a brutal process in which businesses that are inefficient or do not meet customer demand fail.

Populism and competition policy

The original ‘trust buster’ US President Teddy Roosevelt, whose administration brought 44 antitrust suits and broke-up monopolies from railways to tobacco, was much less of a populist than is often assumed. Roosevelt generally favoured increased regulation, but was spurred to more aggressive action by popular sentiment opposed to the trusts.

In a similar way, the strong populist streak that characterised the most recent US election cycle featured various proposals, from both parties, for more aggressive antitrust enforcement. Throughout his campaign, Donald Trump railed against the power of Wall Street banks, accused Amazon of having a ‘huge antitrust problem’, vowed not to approve AT&T’s acquisition of Time Warner and threatened to challenge the NBC Universal/Comcast merger which closed in 2011. Interestingly, President Trump’s nominations for key Federal Trade Commission and Department of Justice positions suggest a much more conservative, centre-right antitrust enforcement stance. Similarly, on the left, commentators have called for an antitrust ‘revolution' and opinion leaders including Senators Bernie Sanders and Elizabeth Warren have called for drastically more vigorous antitrust enforcement, including examination of breaking up powerful corporations in various industries.

In Australia, while such aggressive rhetoric has been rare, competition policy is a perennial political football and there are early signs of this issue worsening. There is a well-established feedback loop linking tabloid newspapers and talkback radio concerns about big business and politicians calling for the Australian Competition & Consumer Commission (ACCC) to ‘do something’ or ‘take action’. Pressure is often sought to be released by Government instructing the ACCC to conduct a review – the most recent example of which was the Government’s March 2017 direction to the ACCC to conduct an inquiry into retail electricity prices, following media pressure, criticism from Labor and the Senate crossbench and calls to reregulate the industry. The ACCC also comes under regular knee-jerk criticism for clearing transactions after thorough reviews.

Although not a competition policy issue, the Government’s announcement of a levy on Australia’s five largest banks as part of the 2017 budget illustrates its free-hand to implement relatively populist policies without resistance (or more likely with support) from Labor or the minor parties.

Clearly, robust competition laws and enforcement are essential. There is also scope for legitimate debate about whether concerns arise from a given transaction and whether enforcement should be more or less aggressive. However, proponents of more populist competition policy often fall into one or more of the following errors:

  • They assume big is bad and that any consolidation is anticompetitive. Mergers are neither pro- nor anti-competitive by default. Some create efficiencies and lead to more dynamic markets and others can lead to increased prices and reduced service levels. On any sensible view, the vast majority of mergers are of the former kind (even of those transactions considered by the ACCC, it clears around 98% unconditionally).

  • They look to competition policy to do more than its core mission of enhancing economic efficiency by promoting competition. Much of the recent commentary has advocated more aggressive enforcement on the basis of claimed benefits for a range of other policy goals. These include fairer labour markets, reduced income inequality, fewer systemic risks from insolvency, protection of small business, expansion of consumer choice or a reduction in the political power of large businesses. However, competition law enforcement is a blunt instrument that, when used to seek to address other policy goals, is likely to result in significant market distortions and dampening of economic activity.

  • They evaluate industries and transactions using a simple numerical analysis that says little about the dynamics of competition and the constraints that will operate upon the merged firm. Observing that there are ten players in one industry but only three in another tells you nothing of use about which is more competitive; neither does the fact that there are more players in the same industry in an overseas market. Competition analysis requires a thorough examination of market structure and dynamics – there is no magic number of competitors required for an industry to be competitive. Some markets, such as those characterised by significant economies of scale or network effects, may be more competitive with fewer competitors.

  • They wrongly assume that markets are becoming inexorably more concentrated and tend to discount new entrants and be too sceptical of the constraint imposed by the threat of entry and innovation. Mergers in innovative, dynamic markets with low barriers entry will rarely be problematic.


Competition policy and enforcement walks a fine line in Australia. Because of our small, trade exposed economy, many domestic industries are necessarily more concentrated than equivalent overseas markets. This makes Australia quite susceptible to the downside risks of a more populist bias in competition policy and enforcement, including the following.

  • First, is the risk from false positives or the ACCC opposing transactions that would not lessen competition, resulting in less efficient markets and reduced international competitiveness. While most ACCC decision-making is open to review in the courts or Competition Tribunal, litigation involves substantial time and cost and is not a viable option for all transactions – whether because a deal cannot withstand the delays involved or the parties lack the financial resources to pursue a challenge. As a result, there are areas in which the ACCC’s decision-making is less tethered by the discipline imposed by a potential legal challenge.

  • Secondly, unnecessary or inappropriate legislative reforms or market interventions pose the same risks to economic efficiency as overly restrictive enforcement and also impose substantial compliance costs on business. Armies of lawyers were deployed to respond to the 2007 ‘Birdsville’ predatory pricing prohibition and the 2011 bank price signalling laws – both of which were implemented in the heat of media cycle and are now set to be discarded without a single enforcement action being taken.

  • Third and finally, the more extensive use of the ACCC’s considerable investigative and review powers imposes substantial costs on business and is likely to have some chilling effect on decisions to pursue transactions.

Australia has been well-served over the years by regular independent and economically-orientated competition policy reviews (the Swanson, Griffiths, Cooney, Hilmer, Dawson and Harper reviews and by more targeted reviews by the Productivity Commission). These reviews have acted as a critical circuit-breaker to prevent less principled policy proposals becoming law and their recommendations should continue to be respected.

The ACCC itself is rightly lauded (including recently by the World Bank and International Competition Network) for its commitment to both economic rigor in its decision making and to clearly communicating its core economic mission. However, populist pressures appear to be building and it is important that the ACCC and policymakers hold back the tide. Doing so will require continued commitment to thorough and dispassionate economic analysis and to articulating what competition law and policy does, what it does not do (or does not do well) and risks of distorting it to seek to achieve other policy objectives.


Mark McCowan

Head of Competition



This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.

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