Andrew Leigh

HIPSTER HEAVEN – COMPETITION AND INNOVATION IN WESTERN AUSTRALIA

The West Australian, 15 June 2017

Hipsters play an underappreciated role in competition policy. The reason for this is simple. Hipsters don’t like the mainstream. They’re not happy unless their clothes are vintage, their bikes are fixies, and their flat whites are served in avocados. If it is mass-produced by a multinational, they won’t touch it.

Indeed, hipsters are the reason we have so many choices when it comes to which alleyway speakeasy to drink in. Across our inner cities, hipsters are the reason why mechanics and car dealers are giving way to cocktail bars and edgy restaurants. Hipsters’ desire for innovation, difference and choice boosts competition.

According to the New York Times, Perth is ‘Hipster Heaven’. So the forces of hipsters should be stronger than ever.

Yet even here, there are signs that competitive pressures aren’t as strong as they should be. On one metric, over half of Australia’s industries are overly concentrated markets. That includes plenty of industries that are important to Western Australia, among them telecommunications, credit unions, cinemas, liquor retailing, pharmacies, hardware, gyms, magazines, newsagents and international airlines.

For all the talk of start-ups and innovation, the rate of new business formation is slower now than it was in the first decade of the twenty-first century. Meanwhile, the pace of mergers continues unabated. The big firms are getting bigger, but the hungry start-ups aren’t snapping at their heels the way they should be.

Megacorps find it easier to work together – and not in a good way. A recent academic study found that big data allowed Perth’s petrol retailers to coordinate the weekly price cycle, driving up margins at the bowser. The researchers concluded that this ‘tacit collusion’ cost motorists around 10 cents a litre.

Uncompetitive markets also tempt firms behave badly. Last December, Perth’s Water Corporation put out a warning on so-called ‘flushable’ wipes. According to Perth’s Mid West regional manager Steve Greeve, there had been a significant spike in blockages.

‘If you mix these wipes with fat’ Steve warned ‘they sort of congeal together in what are called ‘fatbergs’ and you end up with blockages that overflow sewage into people’s houses, or backyards, or streets’. ‘No one likes sewage overflow anywhere’ Steve said ‘let alone inside your house.’ Sadly, flushable wipes aren’t so flushable.

False claims aren’t just a casual annoyance, they damage our economy. Complaints to the competition watchdog of misleading and deceptive conduct are up one third over the last three years.

So what can be done about Australia’s growing competition problem?

Just as police forces must evolve to fight new types of crime, the competition watchdog needs the right powers and resources to tackle monopolies. Last month, the Economist said that ‘antitrust authorities need to move from the industrial age into the 21^st century’. Using Facebook’s acquisition of WhatsApp as an example, the magazine argued that merger authorities should take account of firms’ data assets, not just their market size, when deciding whether to approve a deal.

Labor supports giving the Australian Competition and Consumer Commission a market studies function, which allows the regulator to investigate concentrated sectors and propose solutions before the problems emerge into public view. For example, a market studies power would have allowed Australia’s competition watchdog to initiate its own inquiry into the energy sector without waiting for a specific reference from the federal government.

At last year’s federal election, Labor proposed that the fines for consumer rip-offs be raised to $10 million. We’re pleased the Turnbull government last month adopted this approach.

But if they’re borrowing Labor’s policies, the Turnbull Government should take others too. To clearly signal that corporate wrongdoing doesn’t pay, we’ve advocated linking the penalty for anti-competitive conduct to total sales. Such a move would bring Australian penalties into line with jurisdictions such as the European Union.

Some of the revenue from these higher fines could be directed back into the competition watchdog’s litigation budget, which would give it more firepower to go after companies that flout the law.

In a competitive market, we shouldn’t have more mergers and fewer startups, there shouldn’t be a cheap day to buy petrol, and our drains shouldn’t be clogged with flushable wipes that aren’t. Getting competition right isn’t just about creating a stronger economy, it’s also fundamental to forging a fairer society. For hipsters – and everyone else too.