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Merger crackdown looms as corporate deals push up prices for consumers

Treasurer Jim Chalmers says a crackdown on mergers will help reduce inflation.

Treasurer Jim Chalmers says a crackdown on mergers will help reduce inflation. Photo: TND

The federal government is mulling a crackdown on corporate mergers amid fears consumers are paying too much for things like phone plans and energy because it’s too easy for big companies to buy each other out.

Treasurer Jim Chalmers and Assistant Minister for Competition Andrew Leigh unveiled a consultation paper on Monday aimed at giving the competition watchdog more power to block deals.

It comes after the Australian Competition and Consumer Commission (ACCC) outlined concerns that the existing merger regime is no longer fit for purpose and is hurting consumer interests.

“Increasing economic concentration has emerged as a concern in many countries including Australia,” Chalmers and Leigh said in a statement.

“International evidence suggests current merger rules may be too permissive, allowing some mergers that don’t deliver benefits to consumers, workers and the wider economy.”

Consumers paying too much

Consumer anger at a range of large businesses has peaked in recent months as huge price increases have been passed onto households amid the cost-of-living crisis.

Large telcos and energy companies are among those that have passed on the biggest bill hikes, and what’s interesting is that these industries have also seen huge mergers.

As former ACCC boss Rod Sims has argued, the price of mobile phone plans increased after a controversial merger between TPG and Vodafone in 2020.

Meanwhile, the price of electricity plans also went up following a merger between AGL and Macquarie Generation back in 2014 – another major deal that regulators opposed.

Other big mergers in the recent past have included BHP’s merger with Woodside and the University of Adelaide with the University of South Australia, but is important to note there is no ACCC research that suggests those mergers raised prices.

The reason the ACCC is worried about merger laws is that when large companies merge with each other in a specific industry they command a more dominant position.

That eases competitive pressures, resulting in higher prices than otherwise for goods and services that consumers rely on, like telecommunication plans and electricity.

But it can also deliver wider economic harms, with experts suggesting that a duopoly in Australia’s supermarket industry makes life difficult for food suppliers across the nation.

Treasury summed up the problem neatly in its consultation paper on Monday.

“Evidence suggests that too many anti-competitive mergers have been allowed to proceed in these jurisdictions and that merger enforcement has been too lax over the past 25 years,” it said.

“Broadly speaking, mergers in oligopolistic markets (with only three or four remaining firms) are significantly more likely to lead to higher prices and reduced output post-merger.”

Overhaul of merger laws

The federal government is thinking about a series of reforms to help fix this problem, from empowering the ACCC to have more control over proposed corporate buyouts to new tests about whether a specific deal would limit competition.

An expert advisory panel including David Gonski and Kerry Schott is also pondering changes to merger laws under a competition taskforce that is preparing a report for the Treasurer.

“The Albanese government is focused on tackling cost-of-living pressures now and laying the foundations for future growth,” Chalmers said.

“Making our economy more competitive is critical to both of these goals.”

Proposed changes to merger law include introducing a mandatory notification for deals above a certain threshold that would allow the ACCC to only grant clearance in cases where it was satisfied a deal would not “substantially lessen competition”.

The government is also considering reforming that test, with the ACCC calling for additions to the competition test to account for the effects of creeping acquisitions, access to or control of consumer data, and the loss of potential competition in markets.

Public submissions on the latest consultation paper are open until January 19.

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