No. 231

COMPETITION’S GREAT – PROVIDED IT DOES NOT TAKE PLACE

Stone the crows! Everybody approves of competition, as long as they don’t have to compete.

Responses to the draft report of the Competition Policy Review, chaired by Ian Harper, have closed and some of them share a common theme – that competition is a fine thing as long as every player’s perceived special circumstances are protected.[i]

Professor Harper set out the broad agenda in a Sydney Institute speech last month, which made the case for competition reform as an engine of equity to improve productivity. It is an enormous agenda, assured to upset entrenched interests, as National Competition Policy reforms did two decades back.

But one specific issue attracts ire. Professor Harper proposes to change the way market power is controlled, from focusing on the impact on competitors to “prohibit conduct that has the purpose or effect of substantially lessening competition in a market, with a defence available if that conduct would be a rational business decision and in the long term interests of consumers.” [ii]

Major retailers hate this, arguing that it reverses the burden of proof and “dampens the competitive environment, has the effect of keeping unnecessary costs and inefficiencies in a business; … reduces competition; and delivers reduced benefits to consumers.” [iii]

Good luck with that one, given the way big retailers throw their weight around when they can. Consider claims, for example, by the Australian Consumer and Competition Commission that supermarket chains extract payment from suppliers to make up missed profits. [iv]

The majors also argue that a new competition test will stop the big chains expanding in marginal, say rural, areas.[v] Which small independents argue is a thoroughly a good thing. As one submission from country supermarket owners argued – open slather on trading hours for the majors would allow them “to take control of our town,” driving out the bottle shop, servo and florist, for a start.” [vi]

Not necessarily. For a start the idea that supermarkets are a natural oligopoly, serving up the same stuff, different trolley, just isn’t so. The two major chains are under pressure – German Aldi and US Costco are competing against Coles and Woolworths on price.[vii]

And since when are small businesses always consumers’ friends. Here’s the Pharmacy Guild’s case against allowing supermarkets to compete against pharmacies.

Community pharmacy plays a vital role in the provision of health care services in Australia and is a core component in the National Medicines Policy. Uniquely, a pharmacy is a professional practice with the appearance of a small shopfront business. To assure the public of the safety and quality of pharmacy services, and to ensure the accessibility of pharmacy services to all Australians, it is crucial that pharmacies be owned and controlled by pharmacists and that the current regulatory arrangements in the pharmacy sector be maintained.[viii]

This is nonsense on stilts – yes, pharmacists should dispense prescription medicines but there is only one reason to give existing pharmacies a government monopoly on selling them – the capital value it gives licences owners.

As pharmacy policy specialist Terry Barnes puts it:

Location rules kill genuine competition and consumer choice based on consistently high quality and service across all pharmacies. Entrenching professionally and commercially inefficient pharmacy operators – shielding them from vigorous competition – certainly benefits proprietors and consultants who game the system. But it does nothing for the patients and consumers who are supposedly the centre of the PGA’s universe.[ix]

Which is one of the reasons why the Pharmacy Guild is running a TV campaign to justify the existing arrangement in response to the Harper inquiry. The other is the existing arrangement under which Canberra pays pharmacists to dispense medicine and it expires next year.

The advertisements pitch to the industry’s core customers, the old and infirm, and are about how pharmacists do more than dispense drugs, helping with pain management and post operation recovery, “she checked on health, he visited homes.” [x] Yes, you read it here first, chemists make house calls.

The reply to every rent seeker and ticket clipper who argues against change is that reform that disrupts in the community interest takes priority over arrangements that protect established players. Back in the 1990s, retailers and primary producers protected by state law howled at National Competition Policy – but it lifted GDP by 2.5 per cent. [xi]

So that’s that – argument over.

Not quite, reforms are harder when the economy is quiet and the national government does not have money to spend on compensation. The only way the National Competition Policy passed was by Canberra paying the states to compensate losers and, this time around, players like the Pharmacy Guild will not go quietly.

But when times are tough and losers are loud is when change is needed most.

 


stephen4@hotkey.net.au

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ENDNOTES

[i] Competition Policy Review, Draft report submissions, nd @ http://goo.gl/LHzQSJ recovered on November 22

[ii] Ian Harper, “Competition policy: the next 20 years,” Competition Policy Review, October 14 @ http://goo.gl/VhWYei recovered on November 22

[iii] Australian National Retailers Association, Submission in response to the competition policy review draft report,” November 2014 @ http://goo.gl/N8VJ7w recovered on November 22

[iv] Sue Mitchell, “ACCC takes action against Coles over treatment over suppliers,” Australian Financial Review, October 16

[v] Sue Mitchell, “Woolworths steps up campaign against effects test,” Australian Financial Review, October 20 @

[vi] Katie Walsh, “Big retailers win of chill to competition,” Australian Financial Review, November 19

[vii] Carrie Lafrenz, “The supermarket duopoly is starting to fray,” Australian Financial Review, November 15

[viii] The Pharmacy Guild of Australia, “Submission in response to the competition policy review issues paper,” June 2014 @ http://goo.gl/JJUuIx recovered on November 22

[ix] Terry Barnes, The Stalinism on Australia’s high street,” Australian Financial Review October 2

[x] Pharmacy Guild of Australia, 30 second TVC October 20 http://goo.gl/JMsI6B recovered on November 22

[xi] Australian Competition and Consumer Commission, Reinvigorating Australia’s competition policy, June 25 @ http://goo.gl/gWuJxv recovered on November 22

'2012