Access, Property Rights and Welfare: An Examination of Part IIIA of the Trade Practices Act

Abstract

Part IIIA of the Trade Practices Act provides a mechanism by which third party access can be mandated to facilities such as rail links. This paper examines what it is that Part IIIA might be doing from an economic perspective, and what that tells us about when mandated third party access might be efficient. A critique is presented of simple ‘monopoly leveraging’ arguments for third party access, and it is argued that when profit-maximising vertically integrated firms refuse to provide access, the most likely explanation is not monopoly, but rather that the transactions costs associated with access exceed any potential efficiency gains. These transactions costs are illustrated by reference to the long-running dispute between the Fortescue Metals Group Ltd ('FMG') and BHP Billiton Iron Ore ('BHPBIO') over access to BHPBIO's rail track in the Pilbara region of Western Australia. The conclusion reached is that third party access regimes can cause significant welfare losses, making it important that the scope of these regimes be narrowly defined. Part IIIA is examined in the light of these conclusions and it is argued that the Part as it stands creates a risk of regulatory over-reach. Given that risk, repeal of the Part would be the simplest option; but there may be a case for retaining it, conditional on substantial reform. That reform would significantly restrict the scope the Part provides for mandating third party access.