ACCC flags challenge to Cochlear buy on innovation grounds

Joseph Brookes
Senior Reporter

The competition regulator is warning Coclear’s plan to buy its closest competitor will lessen competition and innovation in “the already highly concentrated” hearing device market. The scrutiny comes as the new federal government throws its support behind competition reforms.

On Thursday, the Australian Competition and Consumer Commission (ACCC) published its statement of issues with Cochlear’s proposed acquisition of Oticon Medical, a Danish rival and one of only three suppliers of non-surgical bone conduction devices.

Cochlear announced plans in April to acquire Oticon for $170 million from its Danish multinational parent company, which is looking to exit its hearing implants business.

The regulator began looking at the deal in August and on Thursday released its preliminary view that the deal would lessen competition and impede innovation.

“These devices are critically important in providing choice to consumers with hearing loss about the way they manage their hearing needs,” ACCC chair Gina Cass Gottlieb said in a statement.

“Market feedback has indicated that demand for these devices is likely to increase and so it is important to ensure acquisitions in this market do not lead to higher prices or reduced innovation over time.”

A consequence of Cochlear buying up its “closest competitor” in non-surgical bone conduction devices — a market with already high barriers to entry — would be lessening innovation in the field, the regulator said in its statement of issues.

“A reduction in innovation would significantly impact the timeliness, choice and/or quality of devices and technologies available to those with hearing loss in the future,” the ACCC said.

Competition minister Andrew Leigh has been advocating for more effective regulations to encourage competition in a “zippier” economy.

“The Australian economy today needs a good dose of competition,” Mr Leigh, a former professor at ANU’s Research School of Economics, said in October.

“Compared with the 2000s, rates of startup business formation and job switching are down. Market concentration and markups are up. Productivity growth – exceptional in the 1990s – was sluggish in the 2010s.”

Economists at Treasury this year warned the gap between the most innovative companies in the world and Australian firms is growing, concluding Australian firms would benefit from new policies that incentivise innovation by removing barriers to competition.

The threat of reduced competition to innovation is a significant issue in Cochlear’s planned acquisition, which the ACCC warns could hurt consumers.

“The ACCC is concerned the proposed acquisition would remove Oticon Medical as a global innovator and also reduce or delay incentives for firms to invest in improving, updating and launching new products,” the statement of issues said.

“Over the long term, this could ultimately mean lower product quality and reduced choice for patients globally and in Australia.”

The ACCC is accepting feedback on its statement of issues by December 22. The ACCC is scheduled to make a final decision on an authorisation in mid-March next year.

Do you know more? Contact James Riley via Email.

Leave a Comment