Will tighter competition laws really help small business owners?

by 18th of March, 2016

Imagine a running race where all competitors are equal. We don't know who will win, but the chances are fair. We also don't have a favourite, because all the competitors are the same. This is perfect competition, because no one competitor has any real advantage.

But what happens if we introduce a giant into the race. The odds change dramatically, as the giant has the resources to take far greater risks and intimidate and damage other competitors.

This analogy applies to business. If a large corporate sees a newcomer and feels marginally threatened, they may reduce their prices or up their marketing spend, or even discuss with other large businesses how to set up barriers preventing the new entrant's success. This is essentially anti-competitive behaviour.

At the moment, it is a grey area in legal terms, as much anti-competitive behaviour can easily be framed as business strategy. If a small business was to sue a larger corporation for this, existing legislation states that the damaged business has to prove the other company had "taken advantage" of its size and power to purposefully hurt them or another competitor.

New legislation to support SME owners

Recent campaigning to amend the Consumer Competition Act and force policymakers to tighten the laws around competition in Australia is ensuing. The proposed reform seeks to introduce an effects test which clarifies what "taken advantage" means, ideally making it easier for small businesses to prove the occurrence of anti-competitive behaviour.

However, larger organisations have been quick to oppose the changes, suggesting that the new wording wouldn't solve any problems.

Professor Ian Harper, chairman of the review panel, introduced the competition policy review with a letter to the Ministry of Small Business. He fully supports the need to make national changes and take on board the 56 recommendations the panel proposed for the reform to protect new business owners or those looking to buy a business.

"Reinvigorating competition will help to raise Australia's productivity levels and living standards and meet the economic challenges and opportunities we face now and into the future," said Mr Harper.