Antitrust Law Daily Wrap Up, ANTITRUST NEWS: ACCC Chairman discusses regulation of monopoly infrastructure in Australia, (Oct 29, 2015)

By Michael Menzhuber, J.D., LL.M.

Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims discussed Australia’s infrastructure settings in a speech today at the Gilbert + Tobin Regulated Infrastructure Policy Workshop in Melbourne, Australia.

In his speech, Sims focused on three areas: (1) the regulation of natural monopolies through the implementation of a negotiate/arbitrate framework, as opposed to price monitoring, (2) high monopoly pricing of infrastructure; and (3) the ACCC’s work with Australian governments to highlight the importance of privatizing assets to promote competition.

Negotiate/arbitrate framework. The ACCC’s point of view is that competition, or the threat of competition, is the best constraint on the market power of infrastructure operators, Sims explained. However, that there are situations, such as where firms have a legislated or natural monopoly, where the conditions for effective competition are absent. Many of Australia’s key infrastructure assets, such as ports and railways, exhibit such monopoly aspects.

Sims when on to explain why price-monitoring, which has been a favored approach to “light-handed” regulation of natural monopolies, has little or no long term impact on the conduct of the monopoly infrastructure owner. The Hilmer committee, when setting out the framework for Austria’s national competition policy, favored a private agreement underpinned by binding arbitration by a regulator in the event of a dispute.

A negotiate/arbitrate framework is true “light-handed” regulation and allows for commercial negotiation, according to Sims. He also characterized price monitoring, when applied to a natural or legislated policy, as “no effective” regulation. Price monitoring can be an appropriate tool for addressing consumer concerns but this benefit should be distinguished from the question of best-practice regulation of monopoly infrastructure.

Sims noted that the one of the important recommendations of the Harper Review was the commitment to a revitalized set of competition principles. He then suggested that any revised agreement should take into account the relative merits of price monitoring versus some sort of price regulation, such as a negotiate/arbitrate framework.

Pure transfer of economic rent. Sims disagreed with the argument that economic regulation is not required for monopoly or near monopoly assets because any monopolistic pricing amounts to a pure transfer of economic rents between parties within the supply chain. In his view, monopolies can be harmful in that they limit investment and innovation in upstream or downstream industries.

Privatization. While noting that the ACCC is not against privatization, Sims stated that privatization should promote economic efficiency, not the maximum proceeds from a sale. He explained that governments have strong financial motives to structure their privatization processes in a manner that maximizes the sale price that they receive. However, they have little incentive to closely examine whether the market structure and regulatory arrangements that will apply post-privatization are conducive to competition and appropriate outcomes.

Sims also expressed concern about the selling of monopolies or near monopolies without appropriate access and/or pricing controls because, when privatized, such assets would result in the transfer of market power to private hands. Without appropriate pricing and access mechanisms in place prior to the sale, there is a strong likelihood that, under non-government ownership, users of private infrastructures would face higher prices and restricted access, Sims noted.

Institutional arrangements. In conclusion, Sims discussed a proposal by the Harper Review to break up the ACCC with the separation of pricing and access functions and the establishment of a new and “converged” national infrastructure regulator. The creation of a separate access and pricing regulator would make it more confusing and burdensome for both businesses and consumers who would have to deal with the two agencies, in Sims’ view.

News: Antitrust