Competition Law Economics
| Substantial lessening of competition
Anti-competitive agreements (s 45), dual listed company arrangements (s 49) and exclusive dealing (other than third line forcing - under s 47) are prohibited only if they have the the purpose, effect or likely effect of substantially lessening competition (SLC) and mergers(s 50) are prohibited only where they have the effect or likely effect of SLC.
To apply the concept of substantially lessening competition in a market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition [p 43,887]
[para 12] in determining whether the proposed conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market, the Court has to:
• consider the likely state of future competition in the market ‘with and without’ the impugned conduct; and
• on the basis of such consideration, conclude whether the conduct has the proscribed anti‐competitive purpose or effect …
The test is not a ‘before and after’ test, although, as a matter of fact, the existing state of competition in the market may throw some light on the likely future of competition in the market absent the impugned conduct. [Emphasis added]
Although not defined in the Act, section 4G provides:
For the purposes of this Act, references to the lessening of competition shall be read as including references to preventing or hindering competition.
In determining whether or not competition is likely to be substantially lessened in the case of mergers, section 50(3) sets out a number of criteria the courts must consider. They are:
(a) the actual and potential level of import competition in the market;
(b) the height of barriers to entry to the market;
(c) the level of concentration in the market;
(d) the degree of countervailing power in the market;
(e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
(f) the extent to which substitutes are available in the market or are likely to be available in the market;
(g) the dynamic characteristics of the market, including growth, innovation and product differentiation;
(h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor;
(i) the nature and extent of vertical integration in the market.
A number of cases have discussed the meaning of competition and what is necessary in order to establish that competition has the purpose or effect of 'substantially lessening competition'.
See, for example:
Dowling v Dalgety Australia Ltd (1992) 34 FCR 109
Substantial lessening of competition; purpose
AW Tyree Transformers Pty Ltd and Wilson Transformer Co Pty Ltd (1997) ATPR (Com) 50–247
Substantial lessening of competition
Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159
Substantial lessening of competition
Stationers Supply Pty Ltd v Victorian Authorised Newsagents Associated Ltd (1993) 44 FCR 35
Purpose of substantially lessening competition; exclusive dealing
See also cases page.
For a comprehensive summary of the case law on SLC, see Peter Armitage, 'The evolution of the substantial lessening of competition test – a review of case law' (2016) 44 Australian Business Law Review 74. See also John Kench, 'Substantial Lessening of Competition' (Competition Law Conference, Sydney, 21 May 2016)
See reading page for more.