Boral Besser Masonry Ltd v ACCC
(2003) 215 CLR 374
The ACCC alleged Boral Besser Masonry (BBM) and its parent company, Boral, had contravened s 46 of the TPA (misuse of market power) by pricing below avoidable cost in order to drive out a competitor (C&M Brick). The ACCC alleged BBM had a substantial degree of power in the market for concrete masonry products in metropolitan Melbourne.
Dismissed the ACCC's application. Held relevant market was the market in which builders 'acquired materials for use in the construction of walls and paving' and that, in that market, BBM did not hold substantial market power. His Honour further concluded that even if BBM did have substantial market power, they had not taken advantage of that power.
2. Concrete masonry products or walling and paving products?
 I have already referred (Pt IV above) to evidence of the use of various alternative products such as tilt-up and clay bricks. The evidence mentioned was but a sample of a large body from both the Commission's and the respondents' witnesses, which was all the one way. This is not a case where the Court has to prognosticate or hypothesise as to the likely behaviour of suppliers or consumers. There was abundant evidence of actual substitution, rising and falling as factors such as price, labour costs, aesthetics and building fashions waxed and waned. This is hardly surprising given the basic facts that the substitutable products were readily available in Melbourne and physically performed the same function.
 The Commission relied heavily on evidence as to the behaviour of BBM management which was said to show close observation of competitive behaviour in the Melbourne concrete masonry market but not outside that market. Thus Mr Cormack could not name the top ten tilt-up producers and Messrs Randerson and Rawnsley paid no attention to the competitive activities or market shares of any companies supplying products other than concrete masonry products. BBM witnesses in internal documents consistently referred to a concrete masonry products market. Mr Vella said in evidence:
"In my mind there's two markets, there's the wider market, which includes tilt-up, clay brick and plasterboard and AAC block and then there's the inner market, if you like, the direct market that we compete with, which is the masonry market."
 In this context the Commission referred to the comments of Deane J in Queensland Wire Industries Pty Ltd v BHP Co Ltd  HCA 6; (1989) 167 CLR 177 at 195-6:
"The identification of relevant markets and the definition of market structures and boundaries ... involves value judgments about which there is some room for legitimate difference of opinion. The economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted. One overall market may overlap other markets and contain more narrowly defined markets which may, in their turn, overlap, the one with one or more others. The outer limits (including geographic confines) of a particular market are likely to be blurred: their definition will commonly involve assessment of the relative weight to be given to competing considerations in relation to questions such as the extent of product substitutability and the significance of competition between traders at different stages of distribution."
 But it is not in my view inconsistent with the existence of the market for which the respondents contend that BBM looked in a different way at producers who made the same products as it did. If a job was lost to tilt-up that was that; it would not matter in particular which tilt-up producer succeeded (there were 37 in Melbourne, so Mr Cormack may perhaps be excused a lack of detailed knowledge of them). But if concrete block was specified there would be the closest scrutiny of the behaviour of BBM's two or three competitors.
 And as already mentioned, there was substantial evidence of the monitoring by BBM (and other masonry manufacturers) of competing products and the formulation of strategies to take sales away from such products and to prevent losing sales to them. For example, Pioneer's October 1993 price list was, according to Mr Griffin, fundamentally designed to win back sales from tilt-up. Concrete masonry manufacturers lobbied builders and architects to specify masonry products, on occasions even after a contract was awarded.
 Concrete masonry products are a notable contrast to the products considered in Arnotts and United Brands. A wall is a wall, whether it is made of concrete blocks or tilt-up or concrete bricks or clay bricks. The only need of the builder is to have a wall which will perform as a wall, and for the lowest possible cost. There is no suggestion in the evidence of any builders who had a particular attachment to or need for concrete blocks or bricks so as to generate the kind of product loyalty considered in Arnotts and United Brands.
 The evidence leads to the conclusion that there was a market in which builders (either directly or through sub-contractors such as blocklayers) acquired materials for use in the construction of walls and paving. Within that market there was not only the ever present threat (or promise) of potential substitution but actual substitution over the time with which this case is concerned.
 The matter can be tested simply. Could manufacturers of concrete masonry block have significantly increased prices without any fear that there would be, in the words of QCMA, "much of a reaction" from tilt-up? Plainly not.
In concluding on the issue of market power his Honour stated:
 The low barriers to entry and the existence of strong competitors, in particular Pioneer and, as time passed, C&M meant that BBM did not have power to behave independently of competition and of competitive forces, either in the market I have found or in the narrower market for which the Commission contended. BBM did not have market power in these markets, and certainly not a substantial degree of market power.
On the issue of taking advantage:
 There must be a causal connection between the market power and the conduct complained of .... The conduct must be made possible only by the absence of competitive conditions: Queensland Wire at 197-8 per Deane J and 202 per Dawson J.
 If the impugned conduct has a business rationale, that is a factor pointing against any finding that conduct constitutes a taking advantage of market power. If a firm with no substantial degree of market power would engage in certain conduct as a matter of commercial judgment, it would ordinarily follow that a firm with market power which engages in the same conduct is not taking advantage of its power. Thus a TV advertising campaign might be a sensible exercise for any firm in a particular market. If one firm happens to have a substantial degree of market power that does not make its campaign a taking advantage of market power.
 Whether or not BBM charged below avoidable cost, it had no prospect of being able to recoup its losses by charging supra-competitive prices. And, importantly, it never thought that it could. ... nowhere is there any suggestion, hope or expectation of BBM being able to recover its losses by supra-competitive prices. Certainly BBM hoped one day to return to profitable operations; there would be no point in it staying in business if that were no so. Yet all it hoped for, or could hope for, was profit in a competitive market. The ever present threat of Pioneer, and the low barriers to new entrants, would prevent anything more. BBM did not take into account recovering past losses, still less recovery by charging monopoly prices. As Mr Cormack said of prior losses, "That was gone, that was history".
 A central part of the Commission's case on the issue of taking advantage, and indeed on the antecedent issue of market power, was the importance of BBM's deep pocket. It was only the great financial resources of BBM which, it was said, enabled it to price below avoidable cost for a sustained period.
 Obviously enough, sustained and substantial price cutting requires financial resources. And BBM, as part of one of the largest corporate groups in Australia, did have access to a lot of money. However there was not, to mix the metaphor, a bottomless pit. ...
 More fundamentally however, I do not agree that financial strength necessarily equates to a substantial degree of market power or that spending a lot of money necessarily equates to taking advantage of such power.
 This issue is really another aspect of the concept of predatory pricing and its place within the framework of s 46. To recapitulate, selling below cost plus recoupment by supra-competitive pricing equals predatory pricing. Absent the second element, or at least the hope or expectation thereof, there is no more than ruthless competitive conduct, something which the TPA does not forbid, but rather promotes.
 Assume firm X has a very deep pocket. It participates in a market with low barriers to entry; no brand loyalties, easy assess to raw materials and so forth. If firm X cuts prices for a sustained period and then attempts to raise prices above a competitive level in order to recover its losses at supra-competitive prices, what will happen? It is likely that new firms will enter the market and they, together with any competing firms which have survived the price war, will be able to undercut firm X and still make profits. This is because, given the hypothesis of low barriers to entry, firm X is unable to give less and charge more - however deep its pocket. Charging high prices, as distinct from low prices, has little to do with financial strength. Any firm can ask for supra-competitive prices. A firm can usually only get them if it is ensconced with a substantial degree of market power.
 Selling below avoidable cost, even for a prolonged period, can be a rational business decision. Such conduct is not of necessity consistent only with taking advantage of market power for the purpose of predatory pricing in the way discussed.
 Although my finding as to the extent of the relevant market is determinative of the case, I have made findings as to the other s 46 issues. There is however a complication with respect to the issue of purpose. Taking advantage of market power for a proscribed purpose is a composite expression involving two elements: Queensland Wire at 213 per Toohey J. What is relevant is not just purpose as an isolated corporate state of mind but the taking advantage of market power for that purpose. So a firm which had substantial degree of market power might act in a way which did not involve taking advantage of that power. In such a case it would not matter if the firm had in mind one of the proscribed purposes.
 Subject to that caveat, there is evidence which establishes that BBM did act with one or more of the purposes proscribed by s 46(1).
His Honour usefully summarised as follows:
XII SUMMARY OF PRINCIPAL FINDINGS
 The relevant market was the market in the Melbourne Metropolitan area in which builders (either directly or indirectly through sub-contractors such as blocklayers) acquired materials for the construction of walls and paving.
 BBM did not have a substantial degree of power in that market.
 If the relevant market was that for the acquisition of concrete masonry products, BBM did not have a substantial degree of power in that market either.
 BBM did not take advantage of any power in either of the two markets mentioned.
 The result I have reached can be tested in this way. The Commission has alleged a substantive contravention that was completed in October 1996 and not merely an attempted contravention (TPA s 76(1)(b)). In whatever terms the relevant market be defined, over the period of two and a half years it was characterised by excess capacity, low demand, very low prices, the exit of two participants (one well funded and the other not) and a new entrant with an efficient plant who built up a market share from zero to 40 per cent. That looks like a market operating competitively in a way that greatly benefited consumers. True it is that s 46, in contrast to other provisions of TPA Pt IV, is not concerned with the effect of the impugned conduct. But the undoubted competitive outcomes came about either (i) despite BBM taking advantage of a substantial degree of market power or (ii) because neither BBM, nor any other participant, had any market power. The latter is, I think, the more likely conclusion.
The ACCC successfully appealed to the Full Federal Court. All members of the Court (in separate judgments) found that the relevant market was the Melbourne market for concrete masonry products, that BBM had substantial market power in that market and that there was a proscribed purpose.
BBM appealed to the High Court which overturned decision of the Full Federal Court. Held by 6-1 majority (Kirby J dissenting) that BBM did not have substantial market power and, even if it did, it did not take advantage of that power for purposes of s 46.
Key quotes (with emphasis added)
Gleeson CJ and Callinan J
[at para 121] The essence of power is absence of constraint. Market power in a supplier is absence of constraint from the conduct of competitors or customers. This is reflected in the terms of s 46(3). Matters of degree are involved, but when a question of the degree of market power enjoyed by a supplier arises, the statute directs attention to the extent to which the conduct of the firm is constrained by the conduct of its competitors or its customers. …
‘[at para 136] In Queensland Wire, Mason CJ and Wilson J defined market power as the ability of a firm to raise prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product. Each side in the present case called an economist as a witness. They both defined or described the market power of a supplier in terms of its ability to raise prices above supply cost without losing business to another supplier. Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply; or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as the critical test; and it is pricing behaviour that is the relevant conduct in the present case. ‘
[at para 137] Power, that is, the capacity to act without constraint, may result from a variety of circumstances. A large market share may, or may not, give power. The presence or absence of barriers to entry into a market will ordinarily be vital. Vertical integration may be a factor. …’ [footnotes omitted].
Gaudron, Gummow and Hayne JJ
[at para 159] … the Act has never contained any specific and comprehensive prohibition of a practice of cutting prices to below cost. That is not surprising …
[at para 198] In my opinion, BBM did not have a substantial degree of power in the relevant market – the sale of concrete masonry products – because it was not able to raise prices to supra-competitive levels without its rivals taking away customers. Nor was it in a position to recover the losses it made by pricing below relevant cost when and if the price-cutting finished. Accordingly, irrespective of the purpose of its pricing, it did not have a substantial degree of market power of which it could take advantage.
[at para 269] … Conduct that is predatory in economic terms and anti-competitive may not be captured by s 46 simply because the predator does not have substantial market power when it sets out on its course to deter or injure competitors … [footnote omitted]
[at para 278] … Although s 46 does not use the term “predatory pricing”, two of its key components are “a substantial degree of [market] power” and a taking “advantage of that power”. A firm does not possess “substantial market power” if it does not have the power to recoup all or a substantial part of the losses caused by price-cutting by later charging supra-competitive prices. … [para 279] Nor if a firm has substantial market power can it be said that it “take[s] advantage of that power” if it has no intention of recouping its losses. …
Kirby J (dissenting)
[para 365] Vertical integration: The primary judge erred in not considering this factor as one important determinant of market power. In particular, the vertical integration of BBM within the Boral group, and the ability of BBM to sustain prolonged losses in the CM market, undoubtedly enabled BBM to maintain its below cost pricing strategy for a longer period that competitors (except perhaps Pioneer) might not, from a strictly financial point of view, have been able to withstand. Knowing and relying on this, BBM would have been entitled to expect that minor competitors would be forced to retreat; which is what happened in two cases. … [footnotes omitted]
[para 374] In the context of a price war in the market, it is clear that a corporation with a substantial degree of market power (whatever that term means) would not be able to raise the market price by restricting its own output. Yet one way it could engineer a rise in prices would be by rapidly expanding its own output in the short run, in order to depress prices further and discipline or punish rivals that engage in price-cutting. This would be done with the aim of either chilling competitive conduct or inducing the exit of operators, and securing an ultimate desired result of an increase in market price
 An integrated concept: The members of the Full Court unanimously concluded that BBM had "taken advantage" of its power for a proscribed purpose. This was a correct, and certainly an available, conclusion having regard to the meaning of that expression, as it appears in the context of s 46; the state of legal authority explaining that expression; and the uncontested evidence and the findings of the primary judge, upheld in the Full Court, concerning the conduct of BBM and the proscribed purposes that it had at the relevant times. [footnotes omitted]
 There are those who want to dissect the concepts in s 46. However, to attack s 46 with scissors is not only to offend the orthodox approach to the interpretation of legislation. It is also to defy three particular rules upon which this Court has insisted concerning the approach that is to be taken to that task. ...
 ... where, as here, the identified statutory purposes are beneficial, in the sense of promoting the public good of competition and preventing and sanctioning practices that inhibit or restrict those ends, courts will give such legislative provisions a beneficial construction. At least, they will do so to the extent that the language enacted by the Parliament so permits. Where that language is expressed in general terms, reflecting large concepts of economic theory, it is appropriate for courts, so far as the language allows, to inform themselves about the considerations that sustain the beneficial purposes of the statute. So far as possible within the text, decision-makers will construe the legislation to advance and achieve those beneficial purposes - not to frustrate their attainment. [footnotes omitted]
Gleeson CJ and Callinan J
 The essence of power is absence of constraint. Market power in a supplier is absence of constraint from the conduct of competitors or customers. This is reflected in the terms of s 46(3). Matters of degree are involved, but when a question of the degree of market power enjoyed by a supplier arises, the statute directs attention to the extent to which the conduct of the firm is constrained by the conduct of its competitors or its customers. The main aspect of the conduct of BBM in question in the present case was its pricing behaviour. Therefore, the Federal Court was required by the statute to have regard to the extent to which BBM's pricing behaviour was constrained by the conduct of other CMP suppliers, or by purchasers of CMP. The reasoning of Heerey J followed that statutory direction.
 The purposes proscribed by s 46 include the purpose of eliminating or damaging a competitor. Where the conduct that is alleged to contravene s 46 is price-cutting, the objective will ordinarily be to take business away from competitors. If the objective is achieved, competitors will necessarily be damaged. If it is achieved to a sufficient extent, one or more of them may be eliminated. That is inherent in the competitive process. The purpose of the statute is to promote competition; and successful competition is bound to cause damage to some competitors.
 It follows that, where the conduct alleged to contravene s 46 is competitive pricing, it is especially dangerous to proceed too quickly from a finding about purpose to a conclusion about taking advantage of market power. Indeed, in such a case, a process of reasoning that commences with a finding of a purpose of eliminating or damaging a competitor, and then draws the inference that a firm with that objective must have, and be exercising, a substantial degree of power in a market, is likely to be flawed. Firms do not need market power in order to put their prices down; and firms that engage in price-cutting, with or without market power, cause damage to their competitors. Where, as in the present case, a firm accused of contravening s 46 asserts that it is operating in an intensely competitive market, and that its pricing behaviour is explained by its response to the competitive environment, including the conduct of its customers, an observation that it intends to damage its competitors, and to do so to such a degree that one or more of them may leave the market, is not helpful in deciding whether the firm has, and is taking advantage of, a substantial degree of market power. ...
 The questions whether BBM had a substantial degree of power in a market between April 1994 and October 1996, and whether its behaviour, and in particular its pricing behaviour, during that period involved taking advantage of, that is, using, that power, are closely related. But, as the decision in Melway shows, they are two questions, not one. The appellant in that case conceded that it had a substantial degree of power, but it was held that its conduct did not involve taking advantage of that power. In the present case, both questions are in issue.
 There is a threshold problem of market definition. A market is an area of close competition; a field of rivalry. As the passage from Re Queensland Co-operative Milling Association Ltd quoted above indicates, and as s 46(3) recognises, both the supply side and the demand side are relevant to an assessment of the market. It does not solve, but merely re-states, the problem to speak of sub-markets. There may be a wider, and a narrower, area of rivalry; but, if the narrower area itself constitutes a market, then it is power and conduct in that area that must be examined. That is not to say, however, that an evaluation of power and conduct in the narrower area can be undertaken in isolation. It may be, in a given case, that the dynamics of rivalry in the narrower area are influenced by what goes on in the wider area.
 The Full Court rejected the conclusion of Heerey J that there was no market for CMP in Melbourne but only, relevantly, a market for wall and paving products. The reasons given by the Full Court, and in particular by Beaumont J, for deciding that the trial judge erred in that respect are cogent. It may be accepted for present purposes that there was a market in CMP in Melbourne.
 Definitions, or explanations of the concept, of market power normally address the market as an area of rivalrous behaviour in which there are suppliers and acquirers of goods or services. That is consistent with s 46(3), which requires consideration of constraint, by reason of the conduct of competitors or customers, or both.
 In Queensland Wire, Mason CJ and Wilson J defined market power as the ability of a firm to raise prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product. Each side in the present case called an economist as a witness. They both defined or described the market power of a supplier in terms of its ability to raise prices above supply cost without losing business to another supplier. Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply; or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as the critical test; and it is pricing behaviour that is the relevant conduct in the present case.
 Power, that is, the capacity to act without constraint, may result from a variety of circumstances. A large market share may, or may not, give power. The presence or absence of barriers to entry into a market will ordinarily be vital. Vertical integration may be a factor.
 Financial strength is not market power, although if a firm has market power, its financial resources might be part of the explanation of that power. The financial ability to survive a price war is not market power, or a manifestation of characteristics that give market power, if, when the price war is over, the market is still highly competitive. Power in a supplier ordinarily means the ability to put prices up, not down. But if a market is not competitive, and a firm puts prices down, seeking to eliminate a potential rival, in the expectation that it will thereafter be in a position to raise prices without competitive constraint, its ability to act in that manner may reflect the existence of market power. An example of such conduct is Compagnie Maritime Belge Transports SA v Commission of the European Communities in which a liner conference, whose members were collectively in a dominant market position, used fighting ships and offered selective price reductions to force an entrant out of business. Ordinarily, where the members of a shipping conference agree between themselves not to engage in price competition, their agreement not to compete on prices will be a source of market power. If an outsider enters the trade, and they make the outsider a target, their conference agreement means they need not fear price competition from each other. Shippers cannot play them off against one another. They may then take advantage of the market power that results from their agreement to force the outsider from the trade, knowing that they can withdraw their offers of reduced prices when the outsider leaves, because the market will then be uncompetitive.
 Such a case is far removed from the present. There can be circumstances in which price-cutting may be undertaken by a powerful firm, or combination of firms. But the ability to cut prices is not market power. The power lies in the ability to target an outsider without fear of competitive reprisals from an established firm, and to raise prices again later.
More extracts forthcoming
Rhonda L Smith and David K Round, 'Do deep pockets have a place in competition analysis' (2012) 40 ABLR 348
Discusses s 46 with particular reference to the Boral and Rural Press cases.
Robertson Wright and Michelle Painter, ‘Recent developments in the application of s 46: Melway and Boral considered’ (2001) 21 Australian Bar Review 105.
Sophie Rigby, 'Predatory Pricing: Lessons form Boral' (Findlaw Australia)
The Hot Tub
The University of Melbourne's Competition Law & Economics Network (CLEN) has released of a video demonstrating Australia’s approach to expert evidence in competition law cases - a mock 'hot tub', based on the facts in Boral and presided over by retired the Hon Peter Heerey QC who was the first instance judge in that case. In addition to the Hon Peter Heerey QC, the expert roles were played by Dr Philip Williams (for the ACCC) and Richard York (for Boral) and counsel were played by David Shavin QC (who acted for the ACCC in the Boral case) and Jack Fajgenbaum QC.