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The effects test: What are the effects?


Today, over 20 small business association leaders are convening at Parliament House to make their case for the adoption of the hotly debated effects test into Australian competition law.

Put simply, the effects test, proposed by the Harper competition review, seeks to amend section 46 of the Competition and Consumer Act by targeting business behaviour that has the effect of substantially reducing competition. It removes the need to show intent or purpose behind anti-competitive actions.

Sounds fair enough. Or at least, it does to the association leaders meeting in Canberra today who purport to represent Australia’s large [and growing] small business community. On the other hand, the Business Council of Australia (BCA) representing big businesses, vehemently oppose the changes. But why?

Targeting business behaviour that has the effect of substantially reducing competition.

Surely changes to any law that aims prevent negative impacts to others would receive all-round support?

Perhaps not when opposition speaks from the desire to protect existing [anti-competitive] practices – or worse still, when the opponents rely on these practices?

The BCA argues that customers will end up paying higher prices. But if we are dictated to solely on the basis of ‘lowest price wins,’ where are we headed? A market devoid of choice and opportunity at the hands of a few large players? Not good news for the economy.

Even a recent report by the Australian Financial Review suggested that the effects test should be resisted, referencing legal uncertainty and the risk of capturing pro-competitive behaviour.

“Ian Harper’s review did not strongly make its case. As it noted, thousands of Australian businesses compete deliberately and ruthlessly every day, often to damage their competitors.”

There is, however a fundamental difference between being competitive and acting to reduce the competition. Like an athlete tripping over a competing runner, one is cheating.

Maybe there is room for further clarity on the scope of the effects test and what it means to be anti-competitive. That said, questions of clarity shouldn’t constitute an argument motivated by self-interest against an arguably positive economic development.