#7181 - Misuse Of Market Power - Competition Law

S 46(1)

A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

1. eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

2. preventing the entry of a person into that or any other market; or

3. deterring or preventing a person from engaging in competitive conduct in that or any other market.

S 46(1AAA)

If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection(1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

• S 46 does not prevent a firm acquiring market power. Rather it prohibits use of that market power for any of the three purposes in (a)-(c). No attempt is made to prohibit or regulate other exercises of market power.

• Queensland Wire : The High Court suggested that the purpose of the provision was to protect the competitive process rather than particular competitors. This reasoning has been followed in subsequent decisions.

• Melway : the majority of the High Court stated: ‘Section 46 aims to promote competition, not the private interest of particular persons or corporations.’

1. The respondent must be a corporation or the extension provisions must apply;

2. The respondent must have a substantial degree of power in a market;

3. The respondent must ‘take advantage’ of that power;

4. The respondent must do this for one or more of the 3 proscribed purposes (i.e. 46(1)(a)-(c)).

• S 46 is directed towards corporations. It also uses the term ‘a corporation.’

• S 6(2)(b) and (h) combine to make s 46 apply to individuals when the proscribed conduct occurs in one or more of the specified forms of trade.

• s 46(2) provides that market power of related corporations can be added together.

  • As a result of this provision, a respondent firm will be taken to have substantial market power if:

    • A body corporate related to it has substantial market power.

      • E.g. A subsidiary, holding company or a subsidiary of a holding company.

    • Two or more bodies corporate related to it have that power.

    • The respondent, together with one or more bodies corporate related to it, have that power when aggregated together.

Steps:

1. What is the market?

2. Does the respondent have substantial degree of market power?

   • Market power is the freedom from constraints.

   • If the respondent is constrained in its price setting and decision making by its actual or potential competitors or by its buyers (like in the Boral Case), it does not have market power. There would then be no need to investigate further.

What is the market?

• See above.

• Market power is “the power to raise price and exclude entry. That power may or may not be exercised....The power is sufficiently free from market pressures to ‘administer’ its own production and selling policies at its discretion.”

In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

1. competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

2. persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

• Therefore ore than one corporation may have substantial market power in a market. It is not essential that for a corporation to have market power, that it substantially controls a market or enjoys absolute freedom from constraint.

• S 46(3) equates market power with discretionary power or an absence of competitive constraints. It requires the courts to have regard to the extent to which a corporation (and any related bodies corporate) is free to determine its own conduct in the market without being consistently inhibited from doing so by others (such as competitors, suppliers or customers).

• Makes it clear that (3) and (3A) do not limit the factors that may be regarded for determining the degree of market power

• Makes it clear that a body corporate can have a substantial degree of market power if it does not substantially control the market or does not have absolute freedom from constraint by the conduct of competitors/potential competitors or persons to whom the body corporate supplies or acquires good from.

• More than one corporation may have a substantial degree of market power in a market.

• ACCC v Baxter Healthcare Pty Ltd [2008] : Justice Gyles noted [at 378] 'A substantial degree of power in a market is not the equivalent of monopoly power.’

• QLD Wire v BHP defined market power as the ability of a firm to raise prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product.

• Boral: Gleeson CJ and Callinan J: Pricing is not be the only indicator of market power. Other aspects include:

  • The capacity to withhold supply; or

  • To decide the terms and conditions, apart from price, upon which supply will take place.

  • A large market share may or may not give power.

  • The presence or absence of barriers to entry is critical.

  • Financial strength is not market power, although if a firm does have market power it may be part of the explanation for that power.

  • The financial ability to survive a price war is not market power, if when the war is over the market is still competitive. Power in a supplier ordinarily means the ability to put prices up, not down. But if a market is not competitive, putting prices down, seeking to eliminate a potential rival, in the expectation that when this occurs it can put prices up without competitive constraint, is ability to act in a manner reflecting the existence of market power (like in Compagnie Maritime Belge Transports SA v Commission of the European Communities where a shipping conference agreed to collectively not compete in prices and then target new comers).

Indicators of market power

Courts have regard to 4 matters in s 46(3) to assess whether a corporation has market power:

1. The number and size of actual competitors;

2. The number and size of potential competitors;

3. Constraints from buyers;

4. Constraints from suppliers.

• The right question is not to look at market share but to ask whether a large market share would survive an attempt to charge higher prices and earn monopoly profits.

• If there is a large market share it may not be an indicator of market power. This is because it may just be offering a low price and competitive product.

• A corporation does not have market power if barriers to entry are low – even if it has 100% market share.

Barriers to entry are key to an assessment of market power

• Barriers to entry are key to an assessment of market power. Not market share. This was recognised in QLD Wire Industries.

• Arnotts has been able to fix its prices, which was discussed in one of the companies’ own documents (labelled as ‘price leaders’). Arnotts has large brand loyalty and highly efficient and expensive infrastructure. It also has economies of scale which come from its market share in terms of volume and distribution costs – it accounts for 65% of sales of all biscuits. It is also given large shelf space and placed first in the traffic flow with 50% of the total biscuit bar. Any other supplier is in a catch 22 position: it cannot increase its shelf space unless it supplies more biscuits and it cannot supply more unless it increases its shelf space. It may not be a permanent problem but it is a barrier to entry.

• FCFCA: Barriers to entry are barriers which confront the entry of a new firm into the market or barriers that confront an existing firm seeking to increase its market share. One of the indications of market power is the capacity of a participant to raise its prices without competitors taking away customers.

Financial strength as a source of market power

• In other words ‘a deep pocket’.

• Gleeson CJ and Callinan J were not convinced it was a source of market power. While Kirby J stated that there was a link between financial strength and market power. BBM was found not to have a substantial degree of power in the relevant market because it was constrained by its customer’s and structural barriers were low.

Market power and oligopoly markets

• The application of s 46 in oligopoly markets was raised in Boral and Universal Music Australia Pty Ltd v ACCC (2003). In the Boral case the constraining influence of customers was crucial. This is because market power is the freedom from constraints; it is a discretionary power to set prices or terms of trade without fear of loosing market share when competitors respond.

• If this is the interpretation, s 46 may only be relevant for a monopoly with dominant market power.

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