Competition policy review

Productivity Commission submission

This submission was made to the Competition Policy Review on 25 June 2014 and publicly released on 27 June 2014. The submission draws on previous Commission work that addresses competition-related issues and policy processes for developing competition policy, and provides additional in-principle commentary.

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Key points

Competition is not an end in itself but plays a crucial role in promoting economic efficiency and enhancing community welfare. Competition:
- gives consumers choice
- provides firms with greater incentives to innovate to reduce their costs, as well as to increase their revenues by better meeting the preferences of their customers
- helps society to generate the greatest value from its scarce resources, and in so doing, to generate higher real household incomes and living standards.
There is scope to undertake further policy reform that can increase competition in the economy and deliver net benefits to the Australian community.
- Some sectors of the economy remain relatively untouched by competitive pressures, with firms in those sectors offered protection from competition by government regulation.
- Applying further reforms to some government-owned businesses could produce efficiency gains.
- Digital-based competition is an emerging presence in many markets. Competition policy should accommodate all new sources of competition, and be sufficiently flexible to accommodate alternative models of service and product delivery.
Governments should undertake assessment processes to determine priority areas for competition policy reform, and to assess the costs and benefits of policy options.
- Governments have many policy options available to them to increase the scope and benefits of competition, including the use of market-based instruments and the removal of regulatory impediments. The policy option chosen should be informed by thorough analysis.
- Opening markets to more competition has proven in many cases to produce efficiency gains - but caution needs to be exercised in some markets. Potential market failures and non-efficiency objectives, such as the promotion of equity, mean that simply promoting competition may not always be desirable.
- Additional measures can help mitigate market failures or address equity concerns associated with competition reform. However, additional measures have costs that will affect the overall net benefits of introducing more competition.
- It remains appropriate to require advocates of restrictions to competition to demonstrate net community benefit from those restrictions, as was the case under the original National Competition Policy reform process.
In the human services sector, the characteristics of the relevant markets, the complexity of arrangements for funding and delivering services, and the need to consider equity objectives, mean that policy options need to be properly structured to deliver the desired outcomes. The policy options may include: opening the sector to further competition; the use of market-based instruments that capture some of the benefits of competition; and administrative, regulatory, and workplace reforms.

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