Misuse of Market Power
Section 46(1) prohibits a corporation with substantial market power taking advantage of that market power for a prohibited purpose. The prohibited purposes include
(a) Eliminating or substantially damaging a competitor … in that or any other market
(b) Preventing entry of a person into that or any other market
(c) Deterring or preventing a person from engaging in competitive conduct in that or any other market
- The purpose element has generally been easy to establish; the stumbling blocks have been market power and 'taking advantage'. Proposed legislation (the Trade Practices Legislation Amendment Bill 2008) will provide some guidance on the 'taking advantage' requirement designed to make it easier to prove.
Predatory pricing
In 2007 the Trade Practices Legislation Amendment Bill (No 1) 2007 introduced a new s 46(1AA) (amongst other things) targetting predatory pricing. It prohibits a corporation having substantial market share supplying goods or services below cost for a sustained period for one of the three prohibited purposes (the same prohibited purposes as for s 46(1). This provision has not yet been used and has been widely criticised; the Trade Practices Legislation Amendment Bill 2008 originally proposed significant amendments to s 46(1AA) including replacing 'market share' with 'market power' and adding a requirement that the party having market power 'take advantage' of that power for a prohibited purpose. The Senate blocked these amendments and the Bill has now passed through in amended form without these originally proposed amendments to s 46(1AA).
The law
Note: the Trade Practices Legislation Amendment Act 2008 (Cth) recently amended section 46. Although not as signicant as first hoped, there are some important additions; the bill was assented to on 21 November and the changes came into operation on 22 November 2008 - the new or amended provisions are highlighted in red, below.
Section 46
Misuse of market power
(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:
(a) 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;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
(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 goos 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.
(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:
(a) 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; or
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.
(1A) For the purposes of subsections (1) and (1AA):
(a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and
(b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.
(2) If:
(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or
(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;
the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.
(3) 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:
(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
(3A) 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 may have regard to the power the body corporate or bodies corporate has or have in that market that results from:
(a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and
(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.
(3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had 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.
(3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:
(a) the body corporate does not substantially control the market; or
(b) the body corporate does not have absolute freedom from constraint by the conduct of:
(i) competitors, or potential competitors, of the body corporate in that market; or
(ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.
(3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.
(4) In this section:
(a) a reference to power is a reference to market power;
(b) a reference to a market is a reference to a market for goods or services; and
(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
(4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to:
(a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and
(b) the reasons for that conduct.
(5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment.
(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93.
(6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:
(a) whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;
(b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;
(c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;
(d) whether the conduct is otherwise related to the corporation’s substantial degree of power in the market.
This subsection does not limit the matters to which teh court may have regard.
(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.
Section 46A
Misuse of market power—corporation with substantial degree of power in trans-Tasman market
(1) In this section:
conduct, in relation to a market, means conduct in the market either as a supplier or acquirer of goods or services in the market.
impact market means a market in Australia that is not a market exclusively for services.
market power, in relation to a market, means market power in the market either as a supplier or acquirer of goods or services in the market.
trans-Tasman market means a market in Australia, New Zealand or Australia and New Zealand for goods or services.
(2) A corporation that has a substantial degree of market power in a trans-Tasman market must not take advantage of that power for the purpose of:
(a) eliminating or substantially damaging a competitor of the corporation, or of a body corporate that is related to the corporation, in an impact market; or
(b) preventing the entry of a person into an impact market; or
(c) deterring or preventing a person from engaging in competitive conduct in an impact market.
(2A) For the purposes of subsection (2):
(a) the reference in paragraph (2)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and
(b) the reference in paragraphs (2)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.
(3) If:
(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of market power in a trans-Tasman market; or
(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to the corporation, together have a substantial degree of market power in a trans-Tasman market;
the corporation is taken, for the purposes of this section, to have a substantial degree of market power in the trans-Tasman market.
(4) In determining for the purposes of this section the degree of market power that a body corporate or bodies corporate has or have in a trans-Tasman market, the Federal Court is to have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate, in the trans-Tasman market is constrained by the conduct of:
(a) competitors, or potential competitors, of the body corporate, or of any of those bodies corporate, in the trans-Tasman market; or
(b) persons to whom or from whom the body corporate, or any of those bodies corporate, supplies or acquires goods or services in the trans-Tasman market.
(5) Without extending by implication the meaning of subsection (2), a corporation is not taken to contravene that subsection merely because it acquires plant or equipment.
(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, because an authorisation or clearance is in force or because of the operation of subsection 45(8A) or section 93.
(7) Without limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its market power for a purpose referred to in subsection (2) even though, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.
(8) It is the intention of the Parliament that this section, and the provisions of Parts VI and XII so far as they relate to a contravention of this section, should apply to New Zealand and New Zealand Crown corporations to the same extent, and in the same way, as they respectively apply under section 2A to the Commonwealth and authorities of the Commonwealth.
(9) Subsection (8) has effect despite section 9 of the Foreign States Immunities Act 1985.
Section 46B
No immunity from jurisdiction in relation to certain New Zealand laws
(1) It is hereby declared, for the avoidance of doubt, that the Commonwealth, the States, the Australian Capital Territory and the Northern Territory, and their authorities, are not immune, and may not claim immunity, from the jurisdiction of the courts of Australia and New Zealand in relation to matters arising under sections 36A, 98H and 99A of the Commerce Act 1986 of New Zealand.
(2) This section applies in and outside Australia.
Cases relating to misuse of market power
Queensland Wire Industries v BHP (1989) 167 CLR 177
Leveraging market power - refusal to deal
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13
Refusal to deal, 'taking advantage'
Boral Besser Masonry Limited v ACCC [2003] HCA 5
Predatory pricing (market power)
NT Power Generation v Power and Water Authority [2004] HCA 48; 219 CLR 90
Access
Rural Press Ltd v ACCC [2003] HCA 75
Threats if competition not withdrawn
'taking advantage'
Articles relating to misuse of market power
Reports relating to misuse of market power
Senate Economics Committee Report on Trade Practices legislation Amendment Bill 2008 (August 2008)
Senate Inquiry into the Effectiveness of the Trade Practices Act 1974 in protecting small business (March 2004)
Griffiths Committee Report (1989)
Mergers, Takeovers and Monopolies: Profiting from Competition?
Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs
Useful links
United States
DOJ - Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act - 2008 Report