Australia could make it easier for consumers to fight back against anti-competitive behaviour. Here’s how

From the supermarket to the petrol pump, many Australians are concerned about the power of large corporations. Are consumers getting a fair deal? Do they have enough choice?

This week, the Australian Competition and Consumer Commission (ACCC) is due to hand the government the final report from its inquiry into Australia’s supermarket sector. They have already said the sector is highly concentrated, with just a few sellers controlling prices and exploiting small suppliers.

This advocacy highlights a key source of pressure on wallets. The ACCC is also pursuing consumer law claims against the big supermarkets for creating the “illusion” of discounted prices.

But across the economy, it is unlikely consumer interests are being protected as much as they could be. Further reforms in competition law would help.

In some countries, consumers can band together to sue private companies and demand compensation if they’ve been harmed by anti-competitive behaviour.

Australian consumers can sue companies too – but it can be burdensome, expensive and complicated. In fact, consumer suits seeking damages for such conduct are rare. Australia could make it easier to fight back.

The problem

Treasury will wrap up a major review of competition law in August.

Two areas of reform have rightly been given particular attention: a merger law for the whole economy, and special rules for large digital platforms.

The merger reform has led to amendments to help the ACCC protect markets and a consultation on regulating platforms which has recently concluded.

Treasury is considering other reforms as well. However, putting consumers in a better position to claim damages for anti-competitive conduct is not on the agenda.

That is unfortunate. Consumers should feel more secure using competition law to demand compensation for anti-competitive harm. As the ACCC has said, the annual damage caused by cartels could amount to hundreds of millions of dollars, a staggering figure.

Even when the ACCC and the Commonwealth Director of Public Prosecutions succeed in bringing cartellists to court to obtain penalties or even criminal sentences, it is a way to punish and deter. It does not make victims whole.

Overseas solutions

Australia lags behind its global counterparts.

In 2005, the European Union launched a debate on this subject. Laws were passed to ensure victims of anti-competitive conduct have a right to full compensation.

Since then, it appears to have become easier for consumers there to seek damages. From 2014 to 2019, one study showed a fivefold increase in the number of cases lodged in the EU, from 50 up to 239 private claims seeking compensation.

In the United States, private antitrust enforcement thrives due to large class actions, where consumers with a similar grievance come together to take action against corporate defendants.

US antitrust law allows treble damages, which means consumers can in theory receive three times the value of any harm suffered plus the costs of the lawsuit. In reality they recover less than that, but with large classes of claimants, the incentives to pursue claims through litigation and settlements are strong.

The Australian situation

On paper, private enforcement of competition law already exists in Australia. However, incentives appear weaker here.

In the EU and US, class actions are designed to encourage claimants to seek compensation for anti-competitive harm, but the rarity of such claims in Australia suggests the settings aren’t quite right.

A class action against major banks for allegedly rigging exchange rates, and a recently lodged class action against Google relating to its AdTech operations, are the exceptions, not the rule.

A 2012 article in the UNSW Law Journal said it was “time for an Australian debate”, but little has happened since.

What now? Here are some possible reforms

Various reforms and initiatives could bolster private enforcement in Australia, including:

1. Reviewing evidence rules to allow judges to order the disclosure of documents collected during investigations, provided the public interest is not compromised. If evidence is too hard to access, victims of cartels have no chance of proving their case.

2. Making it easier for a willing defendant to settle out of court. Sometimes, one defendant in a cartel case may be open to settling out of court but the other defendants are not. In such a case, to make it easier for the willing defendant to settle, it could be clarified that the non-settling defendants – if eventually ordered to pay the claimants – cannot then reclaim part of those damages as a “contribution” from the defendant that did settle.

Without this assurance, individual defendants that would otherwise be ready to settle may hesitate for fear of paying more than their share.

3. The ACCC could also more aggressively seek redress for consumers, which would reduce the need for damages actions. So far, the ACCC and the Commonwealth Director of Public Prosecutions have not made enough use of their ability to seek orders granting such compensation in cartel cases.

Competition law is not just about promoting dynamism and productivity growth, and fairer prices and potential wage growth, though these are clearly desirable.

Competition law should also be about securing relief for victims to make them whole, and to boost their trust in markets. Facilitating private rights of action for consumers can help to elevate justice in this area of the law.