Misuse of Market Power: Rationale and Reform

Abstract

The prohibition against misuse of market power in section 46(1) of the CCA (and its identical predecessor in the Trade Practices Act 1974 (Cth)) has been the subject of ongoing debate, and numerous legislative reviews, throughout its 40-year history. A recurring issue considered by these reviews is whether the provision should be amended to incorporate an 'effects-based test', which would allow liability to be established on the basis of the effect of the impugned conduct on the competitive process in the relevant market. In 2015, the Harper Review became the first of these reviews to recommend the adoption of an 'effects-based test' and, in 2016, the government announced its intention to adopt this recommendation. The announcement remains controversial, praised by some as a long overdue 'strengthening' of the law, and criticised by others as protectionism for small businesses which would ultimately harm consumers. This dissertation addresses the question whether Australia should adopt an 'effects-based test' for misuse of market power. It does so in the context of the wider international debate about the appropriate standard for unilateral anticompetitive conduct, taking into account tests proposed for the characterisation of unilateral anticompetitive conduct in other jurisdictions, especially the United States and the European Union. It makes a comparative analysis of several 'profit-focused tests', including the existing Australian 'take advantage' test, and several 'effects-based tests', including the 'substantial lessening of competition' test proposed by the Harper Review. The respective proposals are evaluated in terms of their likely error costs, administrability and certainty. This dissertation argues that, despite the apparently intractable debate between advocates of profit-focused tests and advocates of effects-based tests, a common thread can be identified. Upon closer analysis, each of the proposals reveals a central concern, not with the actual effect of the conduct, nor with its profitability for the dominant firm, but with the objective purpose of the conduct. The dissertation concludes that a standard which expressly focuses on whether the impugned conduct had an 'objective anticompetitive purpose' is superior to both the profit-focused and effects-based approaches advocated to date.