Coalition’s Divestiture Plan Fuels Supermarket Duopoly Debate

The Coalition is being criticised for allegedly engaging in cheap politics by threatening to dismantle Australia’s supermarket duopoly. Aligning with the Greens may seem questionable, but it highlights how political interests can sometimes converge at the extremes.

The Coalition is tapping into deep-seated frustrations within farming communities and small businesses about the overwhelming power of large retailers and consumer worries about rising prices. While divestiture powers are not the extreme measure some suggest, the Coalition needs to explain why it believes expanding the enforcement provisions of section 46 of the Consumer and Competition Act will yield positive results.

Critics argue that it would have been wiser to wait for the completion of a two-year competition policy review led by Treasury, with input from Kerry Schott, David Gonski, and former ACCC chief Rod Sims. ACCC chairs have not been short on advice for Peter Dutton. Current chair Gina Cass-Gottlieb has said these powers would be “useful to have in the toolkit.” However, past ACCC chair Graeme Samuel, advising on the Environmental Protection and Biodiversity Act reform, called Dutton’s plans a “disgrace” and “populist politics.”

Allan Fels, the inaugural ACCC chair who recently led an ACTU inquiry into price gouging, has supported divestiture powers. He suggested Labor’s opposition might stem from pressure from the Shop Distributive and Allied Employees Association. Fels argued that while forcing supermarket chains to divest individual stores might be impractical, making them divest sectors like petrol or liquor could be a powerful deterrent.

The critical point is that the Coalition’s plan aims to bolster the ACCC’s regulatory power, not to grant politicians the ability to intimidate big businesses. Nationals leader David Littleproud emphasised that divestiture decisions would be made by a court. Opposition Treasury spokesman Angus Taylor stated that forced divestment under the Coalition’s proposal would only occur where it substantially improves competition, requiring proof in court and passing a public interest test.

Currently, the ACCC can use divestiture in limited cases: unwinding mergers, disposing of assets in foreign investment contexts, or addressing severe abuses of market power in electricity markets.

A Treasury review found mixed international experiences with divestiture. In the US, divestiture addresses a wide range of anti-competitive behaviours, used both for merger control and monopolisation cases. Notable examples include the break-ups of Standard Oil and AT&T and the US Department of Justice’s action against Microsoft, which fostered competition in the internet browser market and led to the creation of Google.

In the UK, divestiture is available to address significant competition reductions from proposed mergers, and it can be ordered by the Competition & Markets Authority.

Critics of the Dutton plan warn of potential unintended consequences, particularly given Australia’s vast geography and small population. Due to economies of scale, breaking up supermarket chains could lead to higher prices and fewer consumer choices. Additionally, uncertainty might discourage investment, with firms potentially focusing on more profitable areas and neglecting regional ones. These arguments merit consideration, which is why the Dutton plan must include a thorough consumer benefit and public interest test.

Cass-Gottlieb noted that having divestiture power would strengthen regulators, even if it is never used. Some may be surprised to see conservative forces advocating for increased market regulation, but highly concentrated markets require particular scrutiny. The priority is consumer interest and fostering competition within a free-market system overseen by courts. Ultimately, it is up to regulators and big businesses to make their case.

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