#7175 - Definitions And Defining The Market - Competition Law

QMCA definition of competition:

• Competition expresses itself as rivalrous market behaviour...competition is a process rather than a situation. Nevertheless whether firms compete is very much a matter of the structure of the markets in which they operate.

The object of the CCA:

• Section 2: Object of this Act The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

S 4E of the CCA

Market is defined as:

For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first‑mentioned goods or services.

ACCC Merger Guidelines, November 2008 – Page 141

• A market is the product and geographic space in which rivalry and competition take place. Substitution is key to this definition.

• The ACCC focuses on the product dimension and the geographic dimension within substitution. The functional level of the supply chain and the temporal considerations may be relevant but form part of the above dimensions.

ACCC v Australian Medical Association WA Branch Inc [2003] – page 142

• The definition of market involves asking firstly, what is the relevant product or service? Secondly, in which geographic area is that product bought and sold? These boundaries are not precisely drawn.

High Court: QLD Wire Industries Pty Ltd v BHP (1989):

• In identifying the relevant market the object is to ‘discover the degree of the defendant’s market power.

• Defining the market and evaluating the degree of power in that market are part of the same process and it is for the sake of simplicity that the two are separated.

• Too narrow a description of the market will create the appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is.’

The approach to define ‘market’

Brunt, Market Definition issues in Australia and NZ litigation:

• QWI : Deane J finding suggests that the practical method would be to specify first the conduct claimed to be unlawful. The next question will be what productive activities of the enterprise generate this conduct? And finally what decision making unit within the firm and what particular product or set of related products should be the centre point of the analysis?

Mason J approach:

1. Identify the challenged conduct. This will help you find the best market.

2. Find the productive activities of the firm that resulted in the conduct claimed to be unlawful.

3. Find the section of the firm and the product/set of products within the firm that are the centre point of this analysis.

4. Look at the constraints on these firm activities. This will determine the level of competition in the market before and after the conduct at issue.

In Re Tooth & Co Ltd; In Re Tooheys Ltd (1979) – page 137:

• Steps in delineating a market: of the principles in approaching the task of market delineation:

  1. Identify the areas of close competition of relevance.

  2. Consider both substitution of demand and supply (through production and distribution) when looking at competition.

  3. Time is important. The longer the period allowed for a likely customer and supplier to make adjustments to economic incentives, the wider the market delineated. The longer term is relevant.

  4. Competition is a matter of degree: all competition or substitution does not cease at the outer boundaries of the market.

  5. The field of substitution may contain within it sub-markets wherein competition is especially close or immediate.

  6. The market is a multi-dimensional concept- with dimensions of product, functional level, space and time. The step by step questions to identify the market should be: What is the relevant product? What are the appropriate functional levels? What is the geographic scope of the market?

Sufficient ‘Substitutability’ requirement in s4E:

• ‘Price elevation test’/ ‘price incentive test’/ SSNIP test:

  • The test requires one to infer what the response on the demand and supply side would be to a notional small percentage increase (5-10%) in the price of the products in question.

• It examines the relationship from the point of view of the purchaser. Products A and B are demand substitutable if a relatively small increase in the Price in Product A results in some purchasers shifting their patronage to Product B. They will be substantially demand substitutable if the demand for Product B increases disproportionately to the increase in product A’s price.

Queensland Wire Industries case (HC):

• E.g. if a price increase of 5% results in a significant switch to other brands of beer within one year, then different brands of beer are good substitutes in the eyes of consumers and they compete strongly with each other. This must be considered from the demand and supply side of the market.

News Limited v Australian Rugby Football League Limited (1995) – page 153

• The trial judge, Burchett J, appeared to favour a market that was not confined to rugby league but extended to include union and soccer and Australian rules and basketball. This was controversial and not overturned on appeal.

• Burchett J: The market should be sufficiently broadly delineated to avoid part of the action to be observed from not being included.

Australian Rugby Union Limited v Hospitality Group Pty Ltd [2000] – page 156

• Gyles J: Found that rugby league was a distinct sport (different to union and other sports) and that they were not interchangeable. The fact that some fans may support or play other sports is beside the point.

• The question of a market is of fact and degree, and the evidence which has been called permits an answer either way.

• Both demand and supply substitutability are relevant for the market definition.

QLD Wire Industries Pty Ltd v The Broken Hill Proprietary Company Limited & Anor (1989)

• Y-bar and steel posts are not demand substitutable – being used for different purposes. But the High Court found a market for steel and all steel products. They are in the one market because all steel products are sufficiently supply substitutable – steel producers can easily change rolling mill production from one steel product to another.

• S 4E says that the market must be a ‘market in Australia.’

The Dawson Committee

• Interpreted s 4E as not including a market more broadly than an Australian market. They did not want to risk extending the relevant market beyond national borders, making it more difficult to demonstrate a substantial lessening of competition.

BUT:

• More recently the courts have preferred the view that a market can extend beyond Australia provided that part of the market includes Australia or part of Australia.

Singapore Airlines Ltd v Australian Competition and Consumer Commission [2009] – page 187

• Full Court’s consideration of the meaning of ‘market in Australia’ under s 4E:

  • Authorities accept that the definition excludes a market which is wholly outside Australia. But prices fixed for legs of a journey which take place wholly outside of Australia ultimately affect competition in a market in Australia.

  • JD Heydon found that if a market extends beyond the limits of Australia, the Court would apply the Act by reference to that part of the market which falls within Australia.

  • The market identified by the Notices is not one wholly outside of Australia. It includes routes within Australia’s territorial boundaries.

• There are defining considerations to define a market other than substitutability. Courts have identified non economic factors to define a market. For example:

In Re Tooth & Co Ltd; In Re Tooheys Ltd (1979) – page 137:

• The Tribunal identified a separate market for bulk and packaged beer. It reached this decision despite there being evidence of some substitution between beer and wine. This was because of the distinctiveness of beer as an identifiable product.

Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) – page 151

• Bursill, a ski boot supplier, refused to supply to a dealer who had been engaging in price discounting. Mark contended that the relevant market was for a particular brand of ski boot, Salomon ski boot. Bursill argued the relevant market was sports-gear generally or ski gear.

• Wilcox J: looked at Bursill’s distribution agreement, which required it to forward to France each year a report on sales and promotion of Salomon products. This commented on its major competitors. The relevant market was found to be the Australian ski boot market.

• Traders often compete by offering a package or particular variety of goods and services. In these circumstances, the area of competition may encompass those products and any others substitutable with them. These are called ‘jointly supplied.’

Dowling v Daigety Australia Limited & Ors (1992) – page 201:

• The court found a market for all stock and station agent services. This is...