A business with a substantial degree of power in a market is not allowed to engage in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. This behaviour is referred to as ‘misuse of market power’. It is not illegal to have, or to seek to obtain market power by offering the best products and services.
The possession of market power of itself is not unlawful.
To determine whether there has been a misuse of market power, the courts will likely consider the following questions:
- does the company have substantial market power?
- is it engaging in conduct for the purpose, effect or likely effect of substantially lessening competition?
Market power is the ability of a business to insulate itself from competition.
The market may be considered by asking three questions:
- which products are sufficiently close substitutes (the relevant product market)?
- which other businesses are sufficiently nearby to compete effectively (the relevant geographic market)?
- what is the functional level of the market (this relates to the stage(s) in the production/distribution process covered by a market)?
Within that market a business’s market power may be determined by a combination of factors such as:
- how difficult it is for competitors to enter the market
- the business’s ability to behave with little regard to what its competitors, suppliers or customers do
- the market share of the business
- the financial strength of the business
- the ability of the business to consistently restrict competition.
Even with a substantial degree of market power, a firm will only contravene s. 46 if its conduct has the purpose, effect or likely effect of substantially lessening competition in a relevant market.
- ‘Purpose’ refers to a firm’s intention to achieve a particular result. It can be established by direct evidence or by inference. The purpose specified in s. 46 need not be a firm’s only purpose, but it needs to be a substantial purpose.
- ‘Effect’ refers to the direct consequence of a firm’s conduct. This is determined objectively by examining the actual impact on the competitive process within the relevant market. Although not determinative, evidence of consumer or competitive detriment will be relevant to the ACCC’s consideration of whether to pursue a matter.
- ‘Likely effect’ refers to the likely consequences of a firm’s conduct, including its potential impact on the competitive process. ‘Likely’ means that there is a real chance or a possibility that is not remote.
It is not illegal to have market power or to use it. Conduct by a business with market power is only a contravention of the Competition and Consumer Act 2010 (CCA) if it has the purpose, effect or likely effect of substantially lessening competition.
'Substantial' is an important concept in competition and consumer law and it arises in a number of provisions.
'Substantial’ has been defined in case law as large, weighty, big, real or of substance or not insubstantial. However it is not straightforward; the meaning of substantial depends on the context and in a relative sense.
An effect is considered to be substantial if it is important or weighty in relation to the size of the particular market.
In Stirling Harbour Services Pty Ltd v Bunbury Port Authority  FCA 38; (2000) ATPR 41-752, Justice French said that to work out whether competition is being substantially lessened...
...there [must] be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process.
Applying for exemptions - protection from legal action where the public benefit outweighs any public detriment
s.46 — Misuse of market power