Malcolm Turnbull could be the culprit for forcing large retail chains such as Coles, Woolworths and other big firms to raise their prices at the detriment of consumers across the country. The reason for these price increases is as a result of Federal Government changes to competition laws designed to protect smaller businesses.
The Federal Government is increasing its efforts to minimise the market power of the bigger players. The Cabinet signed off on the ‘effects test’ this week and on Wednesday 16th March the coalition party room was briefed on the new legislation. The funny thing is that previously Mr Turnbull argued against this motion saying, ‘yet again my government taking long overdue reforms out of the too-hard basket.’ So how will this change affect Australian shoppers?
Mr Turnbull claims that this reform is vital for the economy because whilst large companies may seem to be very innovative in their business practices, there is nothing like a strong gust of competition blowing down their neck. The small business lobby and the Nationals have campaigned for a long time to try and put the effects test in place and finally they have achieved this because as of last week it was entered into section 46 of the Competition and Consumer Act.
Harper Review brought this subject up last year recommending that the changes would ban conduct that has the purpose, effect or likely effect of substantially lessening competition. They also mentioned a few other points such as, Courts would have to decide how certain actions would increase competition against how much it decreases competition. Of course the large retail giants don’t like to hear these kinds of action proposals within the government because it means they would lose some control over the market. This is why the likes of Coles, Woolworths and the Retail Council lobby group have threatened to raise their prices and stop opening new stores.
The annoying part about this whole process is that these retailers are acting like children who are not getting their own way. Instead of acting like market leaders and out-competing any rivals, they are complaining that the government is not protecting them enough and as a result they will make the customers pay higher prices as punishment, which all seems a bit backwards to be honest.
Catherine Livingstone, President of the Business Council of Australia said she was “disappointed in the decision.” In her mind if Australia wants a more innovative driven economy they aren’t going about it the right way. Although unfortunately the above mentioned retailers have such a monopoly at the moment that the playing field needs to be levelled, at least for a while in my opinion.
Brad Banducci, CEO of Woolworths agreed with Catherine Livingstone saying the changes will “have a negative effect on not only competition but also customer-led innovations.”
The way I see it, large retailers have had their way for far too long and finally the government has used common sense and deflected pressure away from small shop and business owners to larger corporations such as Wesfarmers and the Business Council of Australia. Claims that these companies will raise prices purely because they don’t get their way is a threat that would require all of those businesses to do it at the same time, otherwise one would have an advantage over the other. This is a scenario that shareholder value driven companies wouldn't be able to stick to over the medium to long term.
The change in many ways is actually positive for the consumer who will benefit from a more competitive market place. Alan Kirkland, CEO of Choice.com.au said that he believes the supermarket price hikes are only a scare campaign designed to subtly threaten the government against making decisions like this. Their scare campaign actually contradicts the capitalist market because if they raise their prices it will allow for smaller companies to enter the market and undercut with more competitive prices, meaning those who raised prices risk losing market share.