Bargaining power

Bargaining power has recently been subject to a great deal of attention. Allegations of bargaining power imbalances in the digital and supermarket industries have spurred calls for bargaining power to be reined in. In an editorial published in the current issue of the Australian Journal of Competition and Consumer Law, Luke Wainscoat, Zoe Odgers and Ashmit Vyas examine the economics of bargaining power, including the effects of that power and whether intervention is needed to prevent its use. Luke and Adrian discuss this in a short video – see below.

Their key findings are that:

• bargaining power can hurt a competitor, but is unlikely to harm the process of competition;
• bargaining is a critical part of the competitive process and so interfering in bargaining between firms can lessen competition;
• the use of bargaining power by buyers reduces consumer prices; and
• many of the arguments used to justify intervention in the bargaining process, for example that bargaining power can reduce innovation do not withstand scrutiny.

The authors find that the ACCC appears to have become increasingly concerned with perceived bargaining power imbalances in cases such as the perishable agricultural goods inquiry, the collective bargaining authorisation at the Port of Newcastle and the News Media Bargaining Code. A review of those matters indicate an incomplete analysis of the effects of bargaining power on competition and consumers.

Given the benefits of bargaining power, the lack of evidence of any harms caused by that power and the importance of bargaining to the competitive process, the authors conclude that:

• the prudent approach for regulators and the government would be to refrain from obstructing the bargaining process; and
• competition policy should focus on conduct that harms the competitive process, rather than intervening in the outcomes of that process by saying one firm should have gained more from the process of competition than another.

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