Effective Merger Review: A Question for Australian Courts?

• DOI: http://doi.org/10.1177/0003603X221126158
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/0003603X221126158

The Antitrust Bulletin

2022, Vol. 67(4) 600 –621

© The Author(s) 2022

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DOI: 10.1177/0003603X221126158

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Article

Effective Merger Review:

A Question for Australian

Courts?

Rhonda L. Smith*

and Deborah Healey**

Abstract

There is increasing global concern about the effectiveness of merger control in competition law.

Globally, concerns about rising market concentration and in particular, the effect of consolidation

by digital platform businesses, have prompted numerous inquiries and articles exploring whether

competition laws are effective in addressing concerns about their anticompetitive impact in

relation to mergers. Australia’s approach to merger control makes it an outlier in a number of

ways. Its major approval procedure, informal clearance, is outside the scope of the Competition

and Consumer Act 2010 (Cth). Formal decisions are generally heard in courts. Of note, under

the current “likely substantial lessening of competition” test which became operative in 1993,

the Australian Competition and Consumer Commission (ACCC) has not successfully proven in

court that a merger would be likely to infringe the law. This article examines the methodology of

Australian courts in applying this test, including the judicial approach to acceptance and assessment

of economic and noneconomic evidence. It suggests approaches to enable consideration of the best

evidence available. This analysis is in the context of amendments to the merger system recently

proposed by the ACCC. We conclude that there are significant challenges in determining whether

a merger is anticompetitive and that changes to the relevant methodology are necessary. This might

be done by adopting the ACCC proposals or by a reconsideration of the merger factors and the

approach to applying them.

Keywords

competition law, digital platforms, mergers, substantial lessening of competition, merger factors

*School of Economics Department, The University of Melbourne, Parkville, Victoria, Australia

**China International Business and Economic Law Centre, School of Private and Commercial Law, Faculty of Law & Justice,

UNSW Sydney, Sydney, New South Wales, Australia

Corresponding Author:

Rhonda L. Smith, Senior Lecturer, School of Economics Department, University of Melbourne, Grattan Street, Parkville,

Victoria 3010, Australia.

Email: rhondals@unimelb.edu.au

1126158ABXXXX10.1177/0003603X221126158The Antitrust BulletinSmith and Healey

research-article2022

Smith and Healey 601

I. Introduction and Background

There is increasing global concern that mergers are being permitted that are likely to have an adverse

impact on competition.1 But what evidence is there that this is occurring? In a recent interview Mike

Walker, Chief Economist with the U.K. Competition and Markets Authority (CMA) in the United

Kingdom, identified four indicators of concern.2 The first was that because the effects of mergers occur

in the future and are uncertain, the consequent lack of evidence prevents competition authorities from

blocking mergers even though they expect that they will be anticompetitive.3 Second, he considered that

the strength and ability of businesses to argue in favor of a merger was not balanced by argument from

consumers likely to be affected by the merger. This could be taken further by recognizing that judges

tend to give more weight to the evidence of business-people than to others when mergers are adjudicated

by the court.4 Third, the increase in business profit margins in recent years is in part due to increased

market power brought about by mergers that were not successfully challenged or that went unchal-

lenged. Finally, the increase in market concentration attributable to partial and cross-ownership arrange-

ments has not been fully recognized by regulators and courts but may be a means of coordination.

Chicago School adherents generally argue that it is more costly to find erroneously that a merger is

likely to substantially lessen competition than it is to allow an anticompetitive merger to proceed. This

is because they believe that the market will self-correct—higher profits will attract new entrants, and this

will force down price and provide the incentive for innovation. This assumes low barriers to entry.

However, in dynamic markets, especially those that are digital, there may be no second chances to

address such damage to the competitive process. While not all platform businesses “tip,” many of them

do when there are strong network effects. The problem is not simply that there is a dominant platform

but that it is increasingly unlikely to be successfully challenged by entry.5 This challenges the Chicago

paradigm in the context of platforms.

Issues in relation to the market power of digital platforms are being debated worldwide with reviews,

recommendations, and new legislation proposed to deal with them. More radical solutions such as

breaking up powerful platforms have been canvassed but not implemented to date.6

1. See for example, the Executive Order of US President Joe Biden on 9 July ‘to promote competition in the American economy’

and ‘to reduce the trend of corporate consolidation’. As part of 72 listed initiatives to tackle pressing competition problems,

the Executive Order called for greater scrutiny of mergers in areas such as hospitals and banks. It called on regulators to enforce

the merger laws vigorously, recognizing that the law allows them to challenge ‘prior bad mergers’ which had gone unchal-

lenged, and noting ‘Big Tech platforms purchasing would-be competitors.’ See https://www.whitehouse.gov/briefing-room/

statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/.

2. RBB Economics, Webinar Highlights: Economic Analysis and the Competition and Markets Authority’s New Merger

Assessment Guidelines, Vimeo (June 2, 2021), https://vimeo.com/574877041?mc_cid=0356ca5381&mc_eid=ced60ecb2c.

3. This was essentially the reason the ACCC did not oppose Woolworths’ acquisition of a 65% stake in the food distributor, PFD,

despite stating that it was concerned that the merger would substantially lessen competition: Woolworths Group Limited – PFD

Food Services Pty Limited, Australian Competition and Consumer Commission (June 10, 2021), https://www.accc.gov.au/

public-registers/mergers-registers/public-informal-merger-reviews/woolworths-group-limited-pfd-food-services-pty-lim-

ited; ACCC Will Not Oppose Woolworths Acquiring 65% Share of PFD, Australian Competition and Consumer Commission

(June 10, 2021), https://www.accc.gov.au/media-release/accc-will-not-oppose-woolworths-acquiring-65-share-of-pfd.

4. This is particularly the case in Australia. See the discussion of Vodafone Hutchinson Australia Pty Ltd v Australian

Competition and Consumer Commission [2020] FCA 117 (13 February 2020) in Section 3.

5. This was noted in the April 2021 statement of the ACCC, the CMA and the Bundeskartellamt, which stated that the acqui-

sition of a small start-up ‘could in reality be the acquisition of what would have been a major competitive threat to the

purchaser in the longer term.’ Competition and Markets Authority, Australian Competition and Consumer Commission &

Bundeskartellamt, Joint Statement on Merger Control Enforcement (Apr. 20, 2021), https://www.accc.gov.au/system/files/

Joint%20statement%20-%20merger%20control%20enforcement.pdf.

6. See, for example, Lina M. Khan, Amazon’s Antitrust Paradox 126(3) Yale L.J. 710 (2017); Ruth Reader Lina Khan’s First

on-Camera Interview: 5 Takeaways From Big Tech Mergers to the Metaverse, Fast Company (Jan. 19, 2022), https://www.

fastcompany.com/90714284/lina-khans-first-on-camera-interview-5-takeaways-from-big-tech-mergers-to-the-metaverse:

‘Some of the metrics that have been used over the last decades have not really captured in full the architecture of market

power we’re seeing and how it’s being exercised’; Robert Akerloff, Richard Holden & Luis Rayo, Network Externalities

and Market Dominance (CEPR Discussion Paper No. DP16783, 2018).