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Thursday, 27 October 2016 12:05

With companies, big is always not better, says ACCC head Featured

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The head of Australia's competition watchdog has warned against blindly accepting the conventional wisdom that concentration of industries will be of benefit to a country, but not advocated any position on mergers and acquisitions.

Rod Sims, chairman of the Australian Competition and Consumer Commission, told the RBB economics conference in Sydney today that the behaviour of monopolies should be a matter of concern.

He pointed out that Australia had seen substantial growth of large corporations over the last two decades.

Analysis by Port Jackson Partners Limited showed revenue from Australia’s largest 100 listed companies increased from 15% of GDP in 1993 to 47% of GDP in 2015. In the US, the corresponding figures were an increase from 33% to 46%.

“In Australia many markets are concentrated or are likely to become concentrated as firms pursue efficiencies from scale. In some markets there may not be room for more than a few efficiently sized firms given the size of demand,” Sims (below, right) said.

“From a competition perspective, what we need to understand is whether smaller rivals or new entrants can readily contest the position of larger, more established firms.

rod sims large“We should, therefore, have an eye to how often the identity of large firms change."

Figures from Port Jackson showed that of the ASX top 100 companies in 1990, only 29 were in the same list in October 2015.

Sims said the top six listed companies had not changed much. In 2005, for example, the top six listed companies by market capitalisation, in order, were BHP, Telstra, and four banks: Commonwealth, NAB, ANZ and Westpac.

"Today the top six companies in order are (the) four banks: Commonwealth, Westpac, ANZ and NAB, followed by BHP Billiton and Telstra," he added.

But the top six had not grown as strongly as the rest of the top 100. Since 1993, the revenue of the top six as a proportion of GDP had doubled from 7% to 16%. The others in the top 100 had seen almost a quadrupling from 8% to 31%.

Sims said: “It seems to me that, absent a clear and convincing economic and evidence based explanation of how a merger will avoid harming consumers, the standard economic wisdom should prevail.

“This wisdom is that mergers resulting in high levels of concentration in markets with substantial barriers to entry will usually reduce competition and cause harm to consumers and our economy.”

He also said circumstances where monopoly pricing has no effect, or only a small effect on economic efficiency, are rare.

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Sam Varghese

Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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