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Misuse of Market Power: History

 

Development of misuse of market power law

The full legislative history of s 46 can be found on the legislation page (s 46 Misuse of market power).

For details of reviews and reports discussing section 46, see the reports page.

For an excellent examination of the development of Australia's misuse of market power laws (to 2014) see Katharine Kemp, 'Uncovering the roots of Australia’s misuse of market power provision: Is it time to reconsider?' (2014) 42 ABLR 329

In brief*

Original provision: Monopolisation

The original section 46 was headed ‘Monopolisation’ and proscribed certain conduct by a corporation in a position substantially to control a market taken against existing or potential competitors. In its original form it made no reference to ‘for the purpose of’.

Introduction of purpose element

This changed in 1977 following recommendations of the Swanson Committee in 1976 which expressed concern that the section could capture 'normal' behaviour if interpreted to refer to the effect of the conduct against individual existing or potential competitor. The section was therefore amended to add the words 'for the purpose of' before the list of proscribed activity

From 'substantial control' to 'substantial degree of market power'

In 1984, a Green Paper questioned the effectiveness of the provision on the ground that the 'substantial control' requirement was too high and subsequent amendments in 1986 reduced this threshold to 'substantial degree of power in a market' and changed the heading of the section from ‘Monopolisation’ to ‘Misuse of market power’.

Minor amendments

In 1992 an amendment (adding ss (1A)) made clear that references to 'competitor' and 'person' in s 46(1) included references to competitors/persons generally or particular classes of competitors/person and very minor amendments were made to subsection (6) in 2006.

Predatory pricing: including the Birdsville Amendment

However, the section remained largely unaltered until 2007 when the phrase 'in that or any other market' was added to s 46(1), the 'Birdsville Amendment' was added to proscribed sustained below cost pricing by a corporation with substantial market share for a proscribed purpose and various other sub-sections were added in an attempt to assist the court in determining whether a firm has substantial market power (ss 3A-3D and 4A).

Most recently, in 2008, the Act was amended to include a provision making clear that in predatory pricing cases recoupment is not a necessary element (ss 1AAA) and inserting a new subsection 46(6A) designed to a assist the court in determining whether a corporation has 'taken advantage' of its market power when engaging in conduct.

* This section adapted from the Dawson Report's overview of the history of the provision

 

Original form

When first enacted (in 1974) the provision read:

Section 46 Monopolisation
(1) A corporation that is in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position-

(a) to eliminate or substantially to damage a competitor in that market or in another market;

(b) to prevent the entry of a person into that market or into another market; or

(c) to deter or prevent a person from engaging in competitive behaviour in that market or in another market.

(2) For the purposes of this section, a corporation shall be deemed to be in a position substantially to control a market for goods or services if that corporation and any related corporation or related corporations are together in a position substantially to control that market.

(3) For the purposes of this section, a reference to a corporation being in a position substantially to control a market for goods or services includes a reference to a corporation which, by reason of its share of the market, or of its share of the market combined with availability of technical knowledge, raw materials or capital, has the power to determine the prices, or control the production or distribution, of a substantial part of the goods or services in that market.

(4) This section does not prevent a corporation from-

(a)  engaging, during the period of 4 months immediately following the date fixed under sub-section 2 (3), in conduct that is of a kind referred to in sub-section 45 (2) or 47 (1) but to which that sub-section does not apply by reason of the fact that the conduct is engaged in before the expiration of that period; or

(b)  engaging, after the expiration of that period, in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 47 and 50, by reason that an authorization is in force in respect of the conduct or by reason of the operation of section 92, 93 or 94.

 

Explanatory Memo and Second Reading

The Explanatory Memo introducing the Trade Practices Bill 1974 was highly descriptive in relation to the Monopolization provision and gives little indication of its purpose (para's 24-26). The second reading speech, delivered by Mr Enderby (then Minister for Manufacturing Industry) on 16 July 1974 (House Hansard p 226),* indicated purpose of the Bill was stated as 'to control restrictive trade practices and monopolisation and to protect consumers from unfair commercial practices'. In relation to monopolisation Mr Enderby states:

[p 229] Monopolisation is defined in clause 46, which has been re-drafted since the earlier Bill was before this House. The clause covers various forms of conduct by a monopolist against his competitors or would-be competitors. A monopolist for this purpose is a person who substantially controls a market. The application of this provision will be a matter for the court. An arithmetical test such as one third of the market-a s in the existing legislation-is , we believe, unsatisfactory. The certainty which it appears to give is illusory.

Clause 46 as now drafted makes it clear that it does not prevent normal competition by enterprises that are big by, for example, their taking advantage of economies of scale or making full use of such skills as they have; the provision will prohibit an enterprise which is in a position to control a market from taking advantage of its market power to eliminate or injure its competitors.

The provision will not apply merely because a person who is in a position to control a market engages in conduct within one of the classes set out in the clause. It will be necessary for the application of the clause that, in engaging in such conduct, the person concerned is taking advantage of the power that he has by virtue of being in a position to control the market. For example, a person in a position to control a market might use his power as a dominant purchaser of goods to cause a supplier of those goods to refuse to supply them to a competitor of the first mentioned person - thereby excluding him from competing effectively. In such circumstances the dominant person has improperly taken advantage of his power.

In the Senate the Second Reading Speech was delivered by Senator Lionel Murphy on 30 July 1974 and was in substantially the same form.

* Note, the original second reading speech to the almost identical Trade Practices Bill 1973 was delivered by then Attorney-General, Senator Murphy ('the Murphy bill) - the re-introduction came about as a result of the double dissolution of Parliament and the re-introduced bill incorporated some previously circulated amendments. Murphy's second reading speech was delivered on 27 September 1973.