ECW3830

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ECW3830
Competition and Regulation
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Week 7 Hilmer report and industry restructuring
Week 5-6 Regulating monopolies and access to
essential facilities
Week 8 Liberalisation in aviation
Week 4 Theories and practice of privatisation
Competition and Regulation
Week 9 Structural reform and regulation in
electricity
Week 3 Deregulation rationales and experiences
Week 10 Competition and regulation in
telecommunications
Week 2 Theories of regulation
Week 11 Mergers, Cartels and restrictive
practices
Week 1 Rationale for competition policy and
regulation
Week 12 - Research topic. Regulation,
deregulation and privatisation in small open
economies
Week 13 Revision
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AimsOn completion of the topic students should
be able to

• Explain the rational for the Hilmer Report- key
  recommendations
• Understand key measures of industry
  restructuring
• Understand the concepts and policies of third
  party access vertical and horizontal separation
  and
• Judge the outcomes of the reforms.

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Essential Reading
The Hilmer Report and Industry Restructuring

• Stephen King, National Competition Policy,
  Economic Record (1997) 73(222) 270-284 (Reading
  16)
• Deighton-Smith, Rex. National Competition
  Policy Key Lessons for Policy-making from its
  Implementation. Australian Journal of Public
  Administration, Sep2001, Vol. 60 Issue 3, p29,
  (Reading 17)
• Quiggin, John. Estimating the Benefits of Hilmer
  and Related Reforms. Australian Economic Review,
  Sep97, Vol. 30 Issue 3, p256, 17p, (Reading 18)

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Week 7 The Hilmer Report and Industry
Restructuring
The Hilmer Report- key recommendations
Restructuring industries to promote competition)
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Development of trade practices legislation
Australia
Current law
Hilmer's report
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Development of trade practices legislation
Australia
Historically, developments of and reforms in
trade practices legislation in any country has
followed new developments in economic systems
which restricted fair competition
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Development of trade practices legislation
Australia
Australian Industries Preservation Act 1906

• Basically - antitrust legislation, similar to
  the American
• Reflected developments in monopolisation of that
  time

Trade Practices Act 1965
Antitrust legislation against Supply
restriction Predatory price cutting Using the
position of dominance to fix prices or other
terms of trade
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Current law
Further development of the 1965
Act Collusions Boycotts Misuse of market
power Exclusive dealing Resale price
maintenance Anticompetitve price
discrimination Merges
Trade Practices Act 1974
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Further development of the 1974
Act and recognition of the necessity for some
other governmental policies and actions apart
from legal enforcement. Not only to forbid
something (passive policy), but Also to
undertake something active Justification of
reforms
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Origins

• 1992, an Independent Committee of Inquiry
• chaired by Professor Fred Hilmer,
• established to advise on changes to Trade
  Practices Act 1974 and the application of the
  principles of competition policy.
• 1993. The Committee presented its report,
  referred to as the Hilmer
• The report was used as the basis of the
  Competition Principles Agreement reached at the
  1995 meeting of the Council of Australian
  Governments (COAG).
• The term Hilmer reforms is now used to refer to
  processes arising from the intergovernmental
  Competition Principles Agreement and the
  associated Competition Policy Reform Act 1995

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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Key recommendations

• The objective is
• to achieve the most efficient provision of
  publicly provided goods and services through
  reforms
• to minimise restrictions on competition and
  promote competitive neutrality.
• The principal reform required under the policy is
  the application of a public benefit test to
  justify the maintenance of any public policy
  which prima facie restricts competition.
• Competitive neutrality policy
• Structural reform of public monopolies
• Third party access.

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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
The principle of competitive neutrality

• In the past, many government business activities
  were able to obtain certain advantages over their
  private sector rivals as a result of their public
  ownership
• exemption from taxes,
• lower costs of finance due to government
  guarantees and
• exemption from regulations affecting private
  sector activity.
• Competitive neutrality principles
• aim to remove this unfair advantage.
• remove the impediment to efficient resource
  allocation that had arisen from the regulatory
  advantage of government owned businesses.
• ensure these businesses face the same costs and
  commercial pressures that face their private
  sector competitors.
• Measures
• corporatisation model for government business
  enterprises
• full taxes or tax equivalent payments, debt
  guarantee fees and private sector equivalent
  regulation.

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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Issues - problems

• A top-down process, with little public debate or
  consultation.
• The result was a hostile public reaction
• This reaction contributed to a general slowdown
  in the pace and extent of microeconomic reform.

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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Elements of policy
Limiting Anticompetitive conduct of firms
Improvements of the 1994 Act
Reforming regulations which restricts competition
Telecommunications, aviation
Reforming the structure of natural monopolies
Electricity generation, etc - separate topics
Third party access
Telecommunication
Restraining monopoly pricing behaviour and access
prising
Establishment of special authorities
Competition between government owned private
business
From governmental authority to official business
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The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Improvements of the 1974 Act
To reconsider exemptions To remove distinctions
between goods and services (against collusions
in services)
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Regulatory restriction on competition should not
exceed what is required for public interest
The Hilmer Report and Industry Restructuring
The Hilmer Report- key recommendations
Hilmer's report
Reforming regulations which restricts competition

• Any restriction on competition must be clearly
  demonstrated to be in the public interest
• New proposals on the restriction of competition
  should to subject of increased public scrutiny
  and, if are adopted, should be reconsidered in
  not more than 5 years
• Review of all existing regulations and, if they
  are not lifted, they should be reconsidered in
  not more than 5 years
• Any review should be undertaken from the whole
  economy not a particular industry perspective.
• Questions
• Who undertakes review?
• What is "public interest"?

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The Hilmer Report and Industry Restructuring
Restructuring industries to promote competition)
Third party access

• National access regime for infrastructure
  services (since 1995)
• legal right for third parties to share the use of
  certain infrastructure services on reasonable
  terms and conditions.
• major infrastructure facilities where it would be
  uneconomic to develop another facility, and where
  access is needed to promote competition in
  another market.

Requires an additional regulatory body
(ies) AUSTEL Regulator General
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Establishment of Australian competition
commission to administer relevant aspects of the
proposed competition policy
The Hilmer Report and Industry Restructuring
Restructuring industries to promote competition)
Restraining monopoly pricing

• enforcement of rules
• administration of the prices oversight mechanism
• regulation review etc

Later on transformed to ACCC
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The Hilmer Report and Industry Restructuring
Restructuring industries to promote competition)
Competition between government owned private
business
From governmental authority to official business
From official business to corporations
Equalisation of taxation systems of the private
corporate sector and official business
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The Hilmer Report and Industry Restructuring
Restructuring Natural Monopolies
Principles

• Based on review
• the appropriate commercial objectives for the
  public monopoly
• the merits of separating any natural monopoly
  elements from potentially competitive elements of
  the public monopoly
• the merits of separating potentially competitive
  elements of the public monopoly
• the most effective means of separating regulatory
  functions from commercial functions of the public
  monopoly
• the most effective means of implementing the
  competitive neutrality principles
• the merits of any Community Service Obligations
  (CSO) undertaken by the public monopoly and the
  best means of funding and delivering any mandated
  CSOs
• the price and service regulations to be applied
  to the industry and
• the appropriate financial relationships between
  the owner of the public monopoly and the public
  monopoly,
• rate of return targets,
• dividends and
• capital structure.

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The Hilmer Report and Industry Restructuring
Examples
rail
telecommunication
electricity
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Revision questions for the next weektutorial
The Hilmer Report and Industry Restructuring

• Explain the concept of third party access. Why
  the policy of third party access is needed? Give
  examples.
• Based on the articles 16, 17 and 18 of the
  reader, outline the key elements and outcomes of
  the reforms of 1990s. Where the reforms
  successful?