Home Page / Legislation / Competition and Consumer Act 2010 / s 46

Competition and Consumer Act 2010 (Cth)

Section 46
Misuse of market power

Note: the Harper Review Final Report recommended significant changes to this provision (see recommendation 30). For details of the changes see my misuse of market power overview. The Government response to the report indicated it would consult further before amending s 46 and, to this end, on 11 December 2015, the Government released a discussion paper calling for submissions on 'options to strengthen the misuse of market power provision'. Submissions were due by 12 Feb 2016 and have now been published. See consultation page. On 16 March 2016 the Government announced it would adopt an effects test for section 46. See Government media release. On 5 September 2016 the Government released Exposure Draft legislation incorporating an effects test. Download PDF of proposed changes or visit MMP comparison page.

Update: On 1 December 2016 (last sitting day of the year) the Government introdcued the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 into the House of Representatives. .

 

The provision

 (1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.

(1A) For the purposes of subsections (1) and (1AA):

(a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and

(b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.

(2) If:

(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or

(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;

the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.

(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

(3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court may have regard to the power the body corporate or bodies corporate has or have in that market that results from:

(a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and

(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

(3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control the market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i) competitors, or potential competitors, of the body corporate in that market; or

(ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.

(4) In this section:

(a) a reference to power is a reference to market power;

(b) a reference to a market is a reference to a market for goods or services; and

(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.

(4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to:

(a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and

(b) the reasons for that conduct.

(5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment.

(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93.

(6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:

(a) whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;

(b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d) whether the conduct is otherwise related to the corporation’s substantial degree of power in the market.

This subsection does not limit the matters to which the court may have regard.

(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.

 

Legislative history

Original provision

Original provision (Trade Practices Act 1974 (Act No 51 of 1974))

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.

Hansard (Senate) 14 August 1974, page 923

During original debates the Attorney General stated:

'the provision is not directed at size as such. It is confined to the conduct by which a monopolist uses the market power he derives from his size against the competitive position of competitors or would-be competitors ... A monopolist is not prevented from competing as well as he is able, e.g. by taking advantage of economies of scale, developing new products or otherwise making full use of such skills as he has ... In doing these things he is not taking advantage of his market power'.

1977 amendments

Substituted by Trade Practices Amendment Act 1977 (Act 81 of 1977)

Section 25
Sections 45, 46 and 47 of the Principal Act are repealed and the following sections substituted:-

...

Monopolization
46. (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 for the purpose of-

(a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation or of a body corporate related to the corporation;

(b) preventing the entry of a person into that market or into any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that market or in any other market.

(2) If-

(a) a body corporate that is related to a corporation is, or two or more bodies corporate each of which is related to the one corporation together are, in a position substantially to control a market for goods or services; or

(b) a corporation, and a body corporate that is, or two or more bodies corporate each of which is, related to that corporation, together are in a position substantially to control a market for goods or services,

the corporation shall be deemed for the purposes of this section to be in a position substantially to control that market.

(3) A reference in this section to a corporation or other body corporate being in a position substantially to control a market for goods or services includes a reference to a corporation or other body corporate, as the case may be, having, by reason of its share of the market, or its share of the market combined with the availability to it of technical knowledge, raw materials or capital, 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) A reference in this section to substantially controlling a market for goods or services shall be construed as a reference to substantially controlling such a market either as a supplier or as an acquirer of goods or services in that market.

(5) Without extending by implication the meaning of sub-section (1), a corporation shall not be taken to contravene that sub-section by reason only that it acquires plant or equipment.

(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47 and 50, by reason that an authorization is in force or by reason of the operation of section 93.

 

1986 amendments

Amended Trade Practices Revision Act 1986 (Act 17 of 1986)

  • References was from a 'corporation that is in a position substantially to control a market' to a 'corporation that has a substantial degree of power in a market'

    Section 17
    Section 46 of the Principal Act is amended

    (a) by omitting sub-sections (1), (2), (3) and (4) and substituting the following sub-sections:

    "(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of-

    (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

    (b) preventing the entry of a person into that or any other market; or

    (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

    "(2) If-

    (a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or

    (b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market,

    the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.

    "(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of-

    (a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

    (b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

    "(4) In this section-

    (a) a reference to power is a reference to market power;

    (b) a reference to a market is a reference to a market for goods or services; and

    (c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.";

    and (b) by adding at the end the following sub-section:

    "(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in sub-section (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.".

1992 amendments

Amended Trade Practices Legislation Amendment Act 1992 (Act 222 of 1992)

  • Inserted subsection 1A

Section 4:

Section 46 of the Principal Act is amended by inserting after subsection (1) the following subsection:

"(1A) For the purposes of subsection (1):

(a) the reference in paragraph (1)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and

(b) the reference in paragraphs (1)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.".

2006 amendments

Amended Trade Practices Legislation Amendment (No 1) Act 2006 (Act 131 of 2006)

Schedule 1, section 9:

Subsections 46(6) and 46A(6)

After "authorization", insert "or clearance".

Schedule 3, section 3:

Subsection 46(6)

After "operation of", insert "subsection 45(8A) or".

Schedule 6, section 5

Subsection 46(6)

After "47", insert ", 49".

2007 amendments

Amended: Trade Practices Legislation Amendment (No 1) Act 2007 (Act 159 of 2007)

  • Inserted controversial predatory pricing provisions and sections (3A)-(3D) regarding the determination of market power.

    Section 1
    Subsection 46(1)

    After "of that power", insert "in that or any other market".

    Section 1A
    After subsection 46(1)

    Insert:

    (1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

    (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

    (b) preventing the entry of a person into that or any other market; or

    (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

    (1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.

    Section 1B
    Subsection 46(1A)

    Omit "subsection (1)", substitute "subsections (1) and (1AA)".

    Section 1C
    Paragraph 46(1A)(a)

    Omit "paragraph (1)(a)", substitute "paragraphs (1)(a) and (1AA)(a)".

    Section 1D
    Paragraph 46(1A)(b)

    After "paragraphs (1)(b) and (c)", insert "and (1AA)(b) and (c)".

    Section 2
    After subsection 46(3)

    Insert:

    (3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court may have regard to the power the body corporate or bodies corporate has or have in that market that results from:

    (a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and

    (b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

    (3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

    (3C) For the purposes of this section, without limiting the matters to which the Court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:

    (a) the body corporate does not substantially control the market; or

    (b) the body corporate does not have absolute freedom from constraint by the conduct of:

    (i) competitors, or potential competitors, of the body corporate in that market; or

    (ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

    (3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.

    Section 3
    After subsection 46(4) Insert:

    (4A) Without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the Court may have regard to:

    (a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and

    (b) the reasons for that conduct.

2008 amendments

Amended: Trade Practices Legislation Amendment Act 2008

Schedule 1
1A  After subsection 46(1)

Insert:

(1AAA)  If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

3  Subsections 46(3), (3A) and (3C)

Omit "Court", substitute "court".

4A  Subsection 46(4A)

Omit "Court" (wherever occurring), substitute "court".

5  After subsection 46(6)

Insert:

(6A)  In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:

(a)  whether the conduct was materially facilitated by the corporation's substantial degree of power in the market;

(b)  whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c)  whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d)  whether the conduct is otherwise related to the corporation's substantial degree of power in the market.

This subsection does not limit the matters to which the court may have regard.

 

Commentary

Aim of provision

In Queensland Wire the High Court suggested that the purpose of the provision was to protect the competitive process rather than particular competitors. This reasoning has been followed in subsequent decisions.

In Melway, the majority of the High Court stated: ‘Section 46 aims to promote competition, not the private interest of particular persons or corporations.’

'Substantial market power'

Until 1986 the threshold was whether or not a corporation was in a position to substantially control a market. The current 'market power' test is less onerous than the 'substantial control' test. See, for example, ACCC v Baxter Healthcare Pty Ltd [2008] FCAFC 141 by Justice Gyles who noted [at 378] 'A substantial degree of power in a market is not the equivalent of monopoly power.  Indeed, the Act was deliberately amended in 1986 to lower the threshold.'

Additional guidance for determining when a corporation has market power was added by Trade Practices Legislation Amendment Act (No 1) 2007 , which inserted sections (3A)-(3D) and also ss (4A) which allows sustained below cost pricing to be considered.

Taking advantage

The 'taking advantage' element has proved one of the most controversial. In Qld Wire the element was essentially interpreted to mean 'use', with Dawson J observing that 'The words "take advantage of" do not have moral overtones in the context of s. 46' and that BHP took advantage of MP because 'It used power in a manner made possible only by the absence of competitive conditions'. If the market was competitive the refusal would have ‘eroded its position in the steel products market'

Subsequent cases have taken a stricter approach. There is currently some debate over whether a 'could' or 'would' test now applies in relation to s 46. The 'could' test provides that if the corporation COULD have acted in the manner it did without substantial market power then it cannot be said to be 'taking advantage' of market power by acting in that way. The 'would' test provides that if the corporation WOULD not have acted in the manner it did in the absence of substantial market power then it will be held to have taken advantage of that power. Consequently, the 'would' test is more inclusive than the 'could' test as it takes into consideration rational business practice.

In Melway the majority of the High Court appeared to apply the 'could' test:

bearing in mind that the refusal to supply the respondent was only a manifestation of Melway's distributorship system, the real question was whether, without its market power, Melway could have maintained its distributorship system, or at least that part of it that gave distributors exclusive rights in relation to specified segments of the retail market. (my emphasis) 

Justice Kirby dissented on this point, noting:

... in Queensland Wire, whatever else was agreed or disagreed, this Court unanimously held that the proper legal construction of s 46 of the Act was that "take advantage of" simply means "use". ... … To the extent that this Court now retreats from its holding in Queensland Wire that the phrase connotes no more than "use" of market position, it will encourage the restoration of a point of distinction which will weaken the effectiveness of s 46. …

This issue came up for consideration again in Rural Press. The Court again applied the 'could' test, finding no contravention of s 46. In this case the Full Federal Court concluded there was no taking advantage of market power because:

... though [Rural Press and Bridge] had the necessary market power and the necessary purpose, they had not taken advantage of their power in the Murray Bridge regional newspaper market but rather had taken advantage of their access to a printing press in Murray Bridge and to the necessary administrative and professional structure to publish a competing newspaper. Rural Press and Bridge could have credibly threatened to enter the Riverland market, and could have actually entered it, regardless of whether they had a substantial degree of power in the Murray Bridge regional newspaper market.

The majority of the High Court held, on this point:

Gummow, Hayne and Heydon JJ: The conduct of "taking advantage of" a thing is not identical with the conduct of protecting that thing. To reason that Rural Press and Bridge took advantage of market power because they would have been unlikely to have engaged in the conduct without the "commercial rationale" – the purpose – of protecting their market power is to confound purpose and taking advantage. If a firm with market power has a purpose of protecting it, and a choice of methods by which to do so, one of which involves power distinct from the market power and one of which does not, choice of the method distinct from the market power will prevent a contravention of s 46(1) from occurring even if choice of the other method will entail it.

The Commission's criticism of the Full Federal Court for asking whether Rural Press and Bridge "could" engage in the same conduct in the absence of market power must be rejected. ... 

The Commission failed to show that the conduct of Rural Press and Bridge was materially facilitated by the market power in giving the threats a significance they would not have had without it.  What gave those threats significance was something distinct from market power, namely their material and organisational assets[emphasis added]

Justice Kirby dissented again, noting:

The suggestion that the application by Rural Press and Bridge of their "market power" was causally irrelevant to the swift retreat of Waikerie seems, with every respect, to border on the fanciful. ...

The conditional threat from Rural Press and Bridge extinguished any chance of competition. It adversely affected consumers and the competitive process in terms of availability of choice, as it forced the withdrawal of a competitor and its product from the market. Rural Press and Bridge did not, as they were entitled to do, compete in the market on the basis of the price or quality of their product. Rather, they threatened to retaliate in a way that was a clear contravention of s 46. With respect, the result of the analysis in the joint reasons in this Court does not protect or promote competition or the competitive process. It stifles it.

A trilogy and the doctrine of innocent coincidence:
This is the third recent decision of this Court (Melway and Boral Besser Masonry Ltd ... being the other two) in which a majority has adopted an unduly narrow view of s 46 of the Act. In effect, it has held, in each case, that the established large degree of market power enjoyed by the impugned corporation was merely incidental or coincidental to the anti-competitive consequences found to have occurred. Notwithstanding the proof of market power, the Court has held that the impugned corporations did not directly or indirectly "take advantage" of that power to the disadvantage of competition in the market.

In my view, the approach taken by the majority is insufficiently attentive to the object of the Act to protect and uphold market competition. It is unduly protective of the depredations of the corporations concerned. It is unrealistic, bordering on ethereal, when the corporate conduct is viewed in its commercial and practical setting. The outcome cripples the effectiveness of s 46 of the Act. It undermines this Court's earlier and more realistic decision in Queensland Wire. The victims are Australian consumers and the competitors who seek to engage in competitive conduct in a naive faith in the protection of the Act. Section 46 might just as well not have been enacted for cases like these where its operation is sorely needed to achieve the purposes of the Act. Judicial lightning strikes thrice. A novel doctrine of innocent coincidence prevails. Effective anti-competitive threats can be made without the redress which s 46 appears to promise. Once again I dissent."

In 2008 amendments were made to s 46 by the Trade Practices Legislation Amendment Act 2008 which appear to make it easier to establish the 'taking advantage' element (although some suggest it is just intended to codify existing legislative developments). Section 46(6A) now provides that the court may consider:

(a) whether conduct was materially facilitated by the market power [this appears to favour a 'would' over a 'could' approach

(b) whether the corporation relied on the market power when engaging in the conduct

(c) whether it was likely the corporation would have engaged in the conduct if they did not have SMP [again, this appears a direct response to the 'could' test adopted in Melway and appears to prefer a 'would' approach]

(d) whether the conduct is otherwise related to the SMP

There is not yet any case law on the new provision.

Predatory pricing - the Birdsville Amendment

In 2007 the Trade Practices Legislation Amendment Act (No 1) 2007 introduced a new s 46(1AA) (amongst other things) targeting predatory pricing. It prohibits a corporation having substantial market share supplying goods or services below cost for a sustained period for one of the three prohibited purposes (the same prohibited purposes as for s 46(1). This provision has not yet been used and has been widely criticised; the Trade Practices Legislation Amendment Bill 2008 originally proposed significant amendments to s 46(1AA) including replacing 'market share' with 'market power' and adding a requirement that the party having market power 'take advantage' of that power for a prohibited purpose. The Senate blocked these amendments and the Bill passed in amended form without these originally proposed amendments to s 46(1AA).

This amendment has proved highly controversial. The OECD's 2010 review of regulatory reform in Australia recommended repealing this provision or, at the least, requiring proof of 'market power' rather than 'market share'. The Competition Policy briefing stated:

This 'Birdsville amendment' (named after the remote pub in which it was supposedly penned) deviates from orthodox economic theory by adopting a threshold based on market share rather than market power, and removing the element of taking advantage (and thereby the requirement of showing a connection between the market share/power and the offending conduct). [at p 22]

The report states:

[Executive summary, p 18] Australia’s competition law was the subject of the 2003 Dawson Review, and the amendments recommended in the Review and a subsequent Senate Committee have been largely implemented. While these represent general improvements, notably in terms of increased sanctions for cartels, the scope and effectiveness of the prohibition against misuse of market power may be less clear now than it was before the amendments. This may reflect the influence of small business "politics" in Australian competition law, as the TPA now includes a prohibition aimed at predatory pricing that could curb discounting by large corporations. The new prohibition risks creating uncertainty, is inconsistent with international precedents, and at a minimum the market share aspect of the "Birdsville amendment" should be removed. [emphasis added]

[page 82] The TPA now includes a prohibition aimed at predatory pricing that could curb discounting by large corporations. Replacing a market power criterion with a market share threshold invites inefficient outcomes, offering protection of the interests of smaller firms but potentially resulting in higher costs to the consumer. The new prohibition risks creating uncertainty, but the current government has been thwarted in the Parliament in its attempts to address these concerns. The government should take advantage of future opportunities to remove at least the market share aspect of the "Birdsville amendment".

[page 164] Two recent amendments add uncertainty to the law applied to predatory pricing. At the behest of Parliamentary advocates for the small business sector, the former government introduced a new provision that prohibits sales below cost, for a sustained period for an impugned purpose. The prohibition in this "Birdsville amendment", so-called after the remote pub in which it was supposedly penned, is based on market share rather than market power, and it does not require showing a connection between market share or power and the offending conduct. The intended relationship between the Birdsville amendment and the general prohibition of misuse of market power is not clear. Another recent amendment aggravates the uncertainty, by denying that a predatory pricing violation should depend on the alleged predator’s ability to recoup its losses from supplying below cost. The true extent of the amendments will be tested if a firm is found liable for below cost pricing in circumstances where it is unlikely that the firm would be found to have substantial market power and there is little prospect of recoupment.

Policy options for consideration

[page 180] Eliminate the special prohibition of predatory pricing, or remove the market share element

[page 180] The scope and effectiveness of the prohibition against misuse of market power may be even less clear now than it was before the recent amendments. To some extent, this reflects the significant influence of small business "politics" in Australian competition law. The TPA now includes a prohibition aimed at predatory pricing that could curb discounting by large corporations. Replacing a market power criterion with a market share threshold invites inefficient outcomes, promising protection of the interests of smaller firms but potentially resulting in higher costs to the consumer. Elaboration of ways to interpret "taking advantage of" market power may add complexity and uncertainty, too.

[page 180] The general prohibition of misuse of market power can deal with predatory pricing. The new dedicated prohibition risks creating uncertainty about pricing decisions. The current government has been thwarted in the Parliament in its attempts to address these concerns. The government should take advantage of future opportunities to remove at least the market share aspect of the "Birdsville amendment". A consistent legally principled and economically robust approach to interpretation of this new prohibition by the courts over coming years will be critical to its prospects.

The (then) Government's response to the OECD recommendation was to express agreement. The Government noted that it does not support the Birdsville Amendment and notes it had previously attempted to remove it or clarify its operation:

The Government welcomes this recommendation, recognising that the competition provisions in Part IV of the Trade Practices Act 1974 (the TPA) should protect the competitive process rather than particular competitors or classes of competitors. As a principle, therefore, the Government does not support the Birdsville amendment.

In line with the OECD’s recommendation, the Government unsuccessfully attempted in 2008 to remove the Birdsville amendment, or to clarify its operation. However, Coalition Senators opposed the Government’s attempt to do so. These amendments were therefore abandoned at that time in the interests of securing passage of other amendments to section 46 contained in the package.

The Government will continue to look for further opportunities to amend or remove the Birdsville amendment.

See also:

 

Cases

Misuse of market power

See Misuse of Market Power page for more comprehensive list. The following are the relevant High Court judgments on s 46:

 

Articles

Misuse of market power

See reading room for more comprehensive list.

Predatory pricing