Misuse of market power – new law proposed

The Federal Government has recently released an Exposure Draft which contains proposed amendments to certain parts of the Competition and Consumer Act 2010 (the “Act”) seeking to improve the competition laws governing Australia.

One of the key proposed amendments is on the misuse of market power provision (section 46 of the Act).

The common types of conduct that may be caught by the law on misuse of market power include:

1. refusal to deal;
2. predatory pricing;
3. tying and bundling; and
4. margin/price squeeze.

The Current Position

Under the current law, a misuse of market power occurs only if a corporation that has a substantial degree of power in a market does both of the following:

1. take advantage of its market power; and
2. does so for any of the following specific purposes:

i. eliminating or substantially damaging a competitor,

ii. preventing the entry of a person into a market, or

iii. deterring or preventing a person from engaging in competitive conduct in a market.

The Harper Competition Policy Review Final Report found that the difficulties with the current law are:

1. there is significant ambiguity as to what constitutes “take advantage”;
2. it is difficult to distinguish between anti-competitive conduct and pro-competitive conduct when the concept of “take advantage” is applied; and
3. the purpose test focuses on harm to the competitors whereas competition law should be concerned with harm to competition itself. This is because harm to competitors can be a natural consequence of proper and legitimate competition.

The New Proposed Position

Under the new proposed law, a misuse of market power can occur as long as a corporation that has a substantial degree of power in a market engages in conduct that has the purpose, or would have or be likely to have the effect, of substantially lessening competition in a market.

The new proposed law resolves the current difficulties in that:

1. A Court no longer has to consider whether there is a nexus between the conduct of a corporation and its market power. A corporation’s conduct can constitute a misuse of its market power even if it does not take advantage of that power.
2. The focus will be on whether the conduct substantially lessens competition, rather than whether it harms the competitors.
3. The purpose test is supplemented by the effects test so that, even if the subjective purpose of the conduct was not to lessen competition, as long as the conduct would have or is likely to have the effect of lessening competition, it will constitute a misuse of market power.

It is notable that the definition of “competition” has been broadened to include competition from goods or services that are imported into Australia. This means that a corporation cannot misuse its market power to lessen competition from overseas.

The new proposed law will likely mean that proving that contravening conduct (a misuse of market power) occurred will be easier because it is no longer necessary to prove a corporation’s (or its officers’) subjective purpose.