Queensland Wire Industries v BHP

(1989) 167 CLR 177

 

In Brief

Qld Wire succeeded in its claim that BHP had engaged in a misuse of market power by refusing to supply it with Y-Bar necessary to make star picket fencing.

Facts

There were two relevant markets: (1) steel products including Y-bar; (2) downstream market for rural fencing (including star picket fence posts).  The Court held that BHP had substantial market power in the first of these markets and ‘leveraged’ it into the second market.  By refusing to supply Y-bar to QWI, BHP was able to prevent QWI making star picket fences with the consequence that it was unable to compete with QWI's subsidiary for the major fencing customers.

Note: BHP would sell Y-bar to QWI, but set its prices so high as to constitute a ‘constructive refusal’.

BHP and AWI (BHP's wholly own subsidiary which manufactured and supplied star picket fencing) claimed their policy to refuse supply, or offer it an uncompetitive price, was to preserve the business of the manufacture and wholesale of fence posts constructed by it in association with each other.

Mason CJ and Wilson J

‘In effectively refusing to supply Y-bar to the appellant, BHP is taking advantage of its substantial market power.  It is only by virtue of its control of the market and the absence of other suppliers that BHP can afford, in a commercial sense, to withhold Y-bar from the appellant.  If BHP lacked that market power … if it were operating in a competitive market – it is highly unlikely that it would standby, without any effort to compete, and allow the appellant to secure its supply of Y-bar from a competitor.’

On the issue of market power generally (particularly, on the difference between market power and market share):

[at 189-190] 'A large market share may be evidence of market power ... but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power. ... Barriers to entry may be legal barriers—patent rights, exclusive government licences and tariffs for example. Barriers to entry may also be a result of large ‘economies of scale’. Where the economies of scale in a market are such that the minimum size for an efficient firm is very large relative to the size of the market, it may be that potential competitors will be dissuaded from entering the market by the apprehension that only one firm would survive.'

Deane J

‘Ordinarily, BHP sells the various products from [its rolling mills] to any manufacturer who desires to purchase them.  Y-bar is the only exception.  The explanation of BHP’s effective refusal to supply Y-bar to QWI is that there is no other local producer or wholesaler of Y-bar and BHP desires to prevent QWI from manufacturing and selling star picket fencing posts (produced from Y-bar) in competition with the second respondent ‘AWI’, which is a wholly owned subsidiary of BHP. …’

In relation to market definition generally (in particular, potential markets):

[at 196] 'While actual competition must exist and be assessed in the context of a market, a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended.

Indeed, for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at a given time—because, for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other.'

Dawson J

‘The words ‘take advantage of’ do not have moral overtones in the context of s. 46’.  BHP took advantage of MP. It used power 'in a manner made possible only by the absence of competitive conditions’.  If the market for Y-bar was competitive then the refusal would have ‘eroded its position in the steel products market without protecting AWI’s position in the fencing materials market.’  Noted also barriers to entry influenced BHP in its actions.

In relation to market definition generally (in particular, potential markets):

[at 200] '… the existence or non-existence of sales of a product cannot conclude whether a market exists or not. It must be sufficient to constitute a market that there is a product for exchange, regardless of whether exchange or negotiation for exchange has actually taken place'

In relation to market power generally:

'Market power has aspects other than influence upon market price. It may be maintained by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal. The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices'.

Toohey J

BHP claimed refusal not a result of no competitors but rather as a result of being vertically integrated and would have been made regardless of whether there were competitors.  QWI claimed BHP only refused to supply Y-bar because of its dominant power in the steel products market.  Toohey J agreed with QWI.

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