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Competition Policy Review (Harper Review)
Misuse of Market Power

Current Provision, Proposed Provision and Government Response

Overview

Current provision

The current prohibition on misuse of market power focusses attention on corporations with substantial market power taking advantage of that power for certain proscribed purposes.

Proposed provision

The Harper Report proposed that the provision prohibite corporations with substantial market power engaging in conduct that would have the effect of substantially lessening competition.

Government response

After deferring a decision on misuse of market power in its initial response to the Harper Report, on 16 March 2016 Prime Minister Turnbull announced that the Government would move to amend s.46 in line with the recommendations of the Harper review: in particular, the media relase states that : 'the Government has decided to repeal the current Section 46, and adopt the changes recommended by the Harper Review in full'.

Exposure draft legislation

The Government released Exposure Draft legislation on 5 September 2016. The proposed law is substantively the same as that proposed by the Harper Panel.

Competition and Consumer Amendment (Misuse of Market Power) Bill 2016

The Government introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 on 1 December 2016. It has made some changes, restricting the market in which the relevant conduct must substantially lessen competition; otherwise it remains the same as the exposure draft and Harper proposal (although it does not include the proposed option for authorisation; this may appear with the next set of Harper amendments). The Bill has been referred to committee for reporting in February.

 

Detailed overview of current and proposed provisions

Current provision

Substantive law

  • Section 46(1) prohibits a corporation with substantial market power taking advantage of that power for the purpose of either (a) eliminating or substantially damaging a competitor; (b) preventing entry; or (c) deterring or preventing a person engaging in competitive conduct (supported by various interpretative sub-sections)
  • Section 46(1AA) prohibits a corporation with a substantial share of a market from supplying, or offering to supply, goods or services for a sustained period at a price less than the relevant cost to the corporation of supply, for a prohibited purpose (same as for s 46(1))

Authorisation

  • Not directly available for s 46

Remedies

  • Various remedies available but no divestiture power

Harper Report proposed provision

Substantive law

  • Section 46(1) should be amended to prohibit a corporation with a substantial degree of market power from engaging in conduct if it would have the purpose, or would have or be likely to have the effect, of substantially lessening competition (SLC)
  • When assessing whether conduct has purpose or effect of SLC court directed to consider:
    • Extent to which conduct has purpose, effect or likely effect of increasing competition in the market (including by enhancing efficiency, innovation, product quality or price experience) and
    • Extent to which the conduct has the purpose, effect or likely effect of lessening competition in the market, including by preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market
  • Section 46(1AA) should be repealed
  • If amendment made to s 46(1) post-2007 amendments (including s 46(6A) directed toward the ‘take advantage’ element) should be repealed

Authorisation

  • Authorisation should be available for conduct which might contravene s 46 and the ACCC should issue guidelines relating to its approach to the provision.

Remedies

  • No new divestiture power should be introduced (existing range of penalties sufficient)

 

Current provision

Section 46 Competition and Consumer Act 2010

(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.

 

Harper proposal

Recommendation 30

The primary prohibition in section 46 of the CCA should be re-framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.

To mitigate concerns about inadvertently capturing pro-competitive conduct, the legislation should direct the court, when determining whether conduct has the purpose, effect or likely effect, of substantially lessening competition in a market, to have regard to:

  • the extent to which the conduct has the purpose, effect or likely effect of increasing competition in the market, including by enhancing efficiency, innovation, product quality or price competitiveness; and
  • the extent to which the conduct has the purpose, effect or likely effect of lessening competition in the market, including by preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market.

Such a re-framing would allow the provision to be simplified. Amendments introduced since 2007 would be unnecessary and could be repealed. These include specific provisions prohibiting predatory pricing, and amendments clarifying the meaning of ‘take advantage’ and how the causal link between the substantial degree of market power and anti-competitive purpose may be determined.

Authorisation should be available in relation to section 46, and the ACCC should issue guidelines regarding its approach to the provision.

This recommendation is reflected in the model legislative provisions in Appendix A.

Appendix A - Model legislative provision

46 Misuse of market power

(1) A corporation that has a substantial degree of power in a market shall not engage in conduct if the conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.

(2) Without limiting the matters that may be taken into account for the purposes of subsection (1), in determining whether conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in a market, the court must have regard to:

(a) the extent to which the conduct has the purpose, or would have or be likely to have the effect, of increasing competition in the market including by enhancing efficiency, innovation, product quality or price competitiveness in the market; and

(b) the extent to which the conduct has the purpose, or would have or be likely to have the effect, of lessening competition in the market including by preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market.

(3) 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.

(4) 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.

(5) 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 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.

(6) Subsections (4) and (5) do not 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.

(7) For the purposes of this section, 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;

(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;

(c) one or more other bodies corporate have a substantial degree of power in that market.

(8) 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, 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.

 

Government response

Initial Government Response to Harper Report

'The Government notes this recommendation and will consult further on options to strengthen the misuse of market power provision.

The Government acknowledges concerns raised in submissions to the Harper Review about the operation of the misuse of market power provision. In light of the importance of this issue for business and consumers, the Government will consult further on options to reform the provision and release a discussion paper on this topic.'

[This was followed by the Treasury Consultation]

Government response 16 March 2016 following Treasury consultation

In a Press Release issued on 16 March 2016, the Government indicated it would adopt the Harper Review's recommendations in relation to s 46.

'Joint Media Statement - Prime Minister, Treasurer and Assistant Treasurer - Competition Policy

The Turnbull Government will legislate to fix competition policy in Australia through implementation of the Harper Review’s recommendation to amend Section 46 of the Competition and Consumer Act - the misuse of market power provision.

The Harper Review into competition policy - an election commitment of the Coalition Government - found Australia’s current misuse of market power provision is not reliably enforceable and permits anti-competitive conduct. This slows the entry and expansion of new and innovative firms, delays the entry of new technologies into Australia and impedes economic growth in the long term.

The Harper Review recommended that Section 46 be replaced by a new provision, which is better able to deal with harm to competition in Australian markets.

Following the review, and understanding of the concerns about the operation of the misuse of market power provision as well as the need to ensure the provisions enhance rather than inhibit competition, the Government undertook extensive consultation with stakeholders to soberly work through the issue.

Following this rigorous process the Government has decided to repeal the current Section 46, and adopt the changes recommended by the Harper Review in full. This will result in a new provision that prevents firms with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition.

The Government is committed to fixing Australia’s competition policy and the amendment of Section 46 to deal with unilateral anti-competitive conduct is an important step to ensure Australia has the best possible competition framework to support innovation and boost economic growth and jobs.

Conscious of the needs of business, the change is deliberately designed to reduce the uncertainty associated with amending a law. It uses existing legal concepts from within the competition law – such as ‘substantially lessening competition’ – and ensures the focus of the provision remains only on those firms that have substantial market power.

This reform represents a commercially and legally robust law, preventing firms with market power engaging in behaviour that harms the competitive process. It places Australia’s competition law on the right footing to encourage economic growth and innovation.

An effective misuse of market power provision is an important and necessary part of competition law, particularly for Australia’s more than two million small businesses which make up more than 97 per cent of all businesses.

The changes the Government has announced will more effectively focus on the long-term interests of both small businesses and consumers, improving the law’s clarity, effectiveness and force.

The change to Section 46 will protect the competitive process and is just one of the many actions the Government is taking to support small businesses, including by extending protections against unfair contract terms to small businesses and introducing Australia’s first Small Business and Family Enterprise Ombudsman.

Today’s announcement adds to the benefits small businesses are receiving from the Government’s response to the Harper Review.

The Government’s response will directly benefit small businesses through:

  • access to remedies, with the Government supporting the Australian Competition and Consumer Commission to take steps to improve its communications with small business and to more actively connect small businesses to alternative dispute resolution schemes;
  • improving the collective bargaining regime under the competition law, to provide more flexibility and increased information for small businesses, to help improve their bargaining position;
  • encouraging state, territory and local governments to review their competitive neutrality guidelines, to ensure that their commercial operation do not negatively affect commercial businesses; and
  • reviewing the anti-competitive impact of regulations, including standards and licensing, freeing up trading restrictions that apply to many businesses.

Protecting the competitive process is unashamedly pro-competition and allows everyone to have a go.

The Government will consult on Exposure Draft legislation before introducing it to Parliament later in 2016.'

Post-2016 election

Treasurer, Scott Morrison MP (21 July 2016):

… the government remains absolutely committed to pursuing our reforms in relation to Section 46 and the effects test, and the related measures that we announced earlier this year. There is no change whatsoever to the government’s position on that matter.

Source: Fluer Anderson, 'Morrison back Nationals over Productivity Commission on farm red tape' (AFR, 21 July 2016)

 

Exposure Draft Bill (5 September 2016)

Section 46 Misuse of market power

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market.

(2) Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market, regard must be had to the extent to which:

(a) the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in that market, including by enhancing efficiency, innovation, product quality or price competiveness in that market; and

(b) the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in that market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into that market.

(3) A corporation is taken for the purposes of this section to have a substantial degree of power in a market if:

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

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

(4) 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:

(a) regard must be had 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:

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

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

(b) regard may be had to the power the body corporate or bodies corporate has or have in that market that results from:

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

(ii) any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

(5) For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control that 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.

(6) Subsections (4) and (5) do not 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.

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

(8) In this section:

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

(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.

Section 88 Commission may grant authorisations

Granting an authorisation

(1) Subject to this Part, the Commission may, on an application by a person, grant an authorisation to a person to engage in conduct, specified in the authorisation, to which one or more provisions of Part IV specified in the authorisation would or might apply.

Note: For an extended meaning of engaging in conduct, see subsection 4(2).

Effect of an authorisation

(2) While the authorisation remains in force, the provisions of Part IV specified in the authorisation do not apply in relation to the conduct to the extent that it is engaged in by:

(a) the applicant; and

(b) any other person named or referred to in the application as a person who is engaged in, or who is proposed to be engaged in, the conduct; and

(c) any particular persons or classes of persons, as specified in the authorisation, who become engaged in the conduct.

Conditions

(3) The Commission may specify conditions in the authorisation. Subsection (2) does not apply if any of the conditions are contravened.

Single authorisation may deal with several types of conduct

(4) The Commission may grant a single authorisation for all the conduct specified in an application for authorisation, or may grant separate authorisations for any of the conduct.

Past conduct

(5) The Commission does not have power to grant an authorisation for conduct engaged in before the Commission decides the application for the authorisation.

Withdrawing an application

(6) An applicant for authorisation may at any time, by writing to the Commission, withdraw the application.

Section 90 Determination of applications for authorisations


(1) The Commission shall, in respect of an application for an authorization:

(a) make a determination in writing granting such authorization as it considers appropriate; or

(b) make a determination in writing dismissing the application.

(6) The Commission must not make a determination granting an authorisation under section 88 in relation to conduct unless the Commission is satisfied in all the circumstances:

(a) that the conduct would not have the effect, or be likely to have the effect, of substantially lessening competition; or

(b) that:

(i) the conduct would result, or be likely to result, in a benefit to the public; and

(ii) the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.


(10)   If the Commission does not determine an application for an authorisation (other than an application for a merger authorisation) within the relevant period, then it is taken to have granted the application at the end of that period.

(10A)   For the purposes of subsection (10), the relevant period is the period of 6 months beginning on the day the Commission received the application. However, if, before the end of that 6 month period:

(a)   the Commission has prepared a draft determination under subsection 90A(1) in relation to the application; and

(b)   the Commission determines in writing that that period is extended by a specified period of not more than 6 months; and

(c)   the applicant agrees to that period being so extended;

the relevant period is that period as so extended.

 

Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (1/12/16)

Section 46 Misuse of market power

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

(2) Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market, regard must be had to the extent to which:

(a) the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in that market, including by enhancing efficiency, innovation, product quality or price competiveness in that market; and

(b) the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in that market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into that market.

(3) A corporation is taken for the purposes of this section to have a substantial degree of power in a market if:

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

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

(4) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate have in a market:

(a) regard must be had 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:

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

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

(b) regard may be had to the power the body corporate or bodies corporate have in that market that results from:

(i) any contracts, arrangements or understandings that the body corporate or bodies corporate have with another party or other parties; or

(ii) any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

(5) For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control that 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.

(6) Subsections (4) and (5) do not 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.

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

(8) In this section:

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

(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.

 

Media

See Harper Media Page for media on the Government response and, more generally, the Harper recommendations relating to misuse of market power.