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In Re Tooth and Co Limited; In Re Tooheys Limited

(1979) ATPR 40–113

 

On the issue of market delineation

[at 18,196-18,197] '… it may be helpful if we summarise briefly the principles we have had in mind in approaching the task of market delineation. …

First, and most generally, we seek to identify the area or areas of close competition of relevance for the applications.

Second, such competition may proceed not just through the substitution of one product for another in use (substitution in demand) but also through the substitution of one source of supply for another in production or distribution (substitution in supply). The market should comprehend the maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another. In an economist’s language, both cross-elasticity of demand and cross-elasticity of supply are relevant.

Third, there is the matter of time perspective. It is plain that the longer the period allowed for likely customer and supplier adjustments to economic incentives, the wider the market delineated. In our judgment, given the policy objectives of the legislation, it serves no useful purpose to focus attention upon a short-run, transitory situation. We consider we should be basically concerned with substitution possibilities in the longer run. This does not mean we seek to prophesy the shape of the future—to speculate upon how community tastes, or institutions, or technology might change. Rather, we ask of the evidence what is likely to happen to patterns of consumption and production were existing suppliers to raise price or, more generally, offer a poorer deal. For the market is the field of actual or potential rivalry between firms.

Fourth, all competition or substitution does not cease at the outer boundaries of the market; the economy as a whole is a network of substitution possibilities in consumption and production; competition is a matter of [18,197] degree. Rather, at the extremities of the market, there is such a break in substitution possibilities that firms within its boundaries would collectively possess substantial market power: were they to join forces as a cartel, they would be able to raise prices or offer a poorer deal without their market being substantially undermined by the incursions of rivals.

Fifth, within the bounds of the market, substitution possibilities may be more or less intense, and more or less immediate: the field of substitution is not necessarily homogeneous but may contain within it sub-markets wherein competition is especially close or especially immediate. There may be, too, certain key sub-markets such that their competitive relationships have a wider effect upon the functioning of the market as a whole. In these matters we have found that the identification of relevant sub-markets may be rather helpful in clarifying how competition works.

Finally, as is commonly recognized, the market is a multi-dimensional concept—with dimensions of product, functional level, space, and time. Taking (as just explained) the longer run time perspective as given, we have found it helpful in our market identification task to proceed in step by step fashion dealing with each of these questions: What is the relevant product? What are the appropriate functional levels? What is the geographic scope of the market?'

 

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