The Harper Review's proposed rewrite of the misuse
of market power provision seems to throw a much wider net than the
Since its introduction in its current form in the 1980s, the
misuse of market power provision – section 46 of the
Competition and Consumer Act 2010 – has been the subject of
intense debate and numerous reviews and inquiries.
Now we have a concrete reform proposal from the Harper Review of
competition policy intended to make the law "fit for
purpose". Will it be a step in the right direction?
This law is aimed at preventing companies with a powerful market
position from deliberately using their power to stamp out their
competition. Currently the law requires the courts to consider
three key factors to determine whether a company has misused its
A critical factor is whether the conduct is "ordinary
competition on the merits", as distinct from behaviour which
only a powerful company would be likely to pursue. Did the company
actively seek to use its position of power for a prohibited
purpose, which includes eliminating or substantial ly damaging a
competitor? The complexity inherent in this test has been much
Under the Harper Review proposal, section 46 would be redrafted
so that a corporation that has a substantial degree of power in a
market will be prohibited from engaging in any 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. This seems a much simpler test and omits the
question of whether the company has used its market power
The merits of adding an "effects" test have long been
debated. The draft recommendation is consistent with the
regulator's argument that market misuse is currently is
"wrongly conceived" in focusing on behaviour that intends
to damage an individual competitor rather than behaviour that has
the effect of substantially lessening competition.
But the new proposal seems to throw a much wider net than the
For example, a market participant with substantial market power
may be deterred from engaging in conduct or employing business
strategies because one of the possible effects might be to reduce
competition in some way or at least in the short term. Forecasting
those effects will not be easy and the new law could be invoked if
the conduct will increase competition in one market, but might
reduce it elsewhere.
Also contentious is the draft recommendation to include a
proposed two-step defence. This defence will be available firstly,
if the conduct amounts to a rational business decision or strategy
by a corporation that does not have a substantial degree of power
in the market. Secondly, the firm involved will have to prove that
the effect or likely effect of its conduct is to benefit the
long-term interests of consumers.
This second limb of the defence, and the way it would need to be
applied in practice, could be problematic. Take for instance a
company with substantial market power. The company decides to
refuse to deal with a particular supplier for a legitimate business
reason. That refusal to deal may have the effect of substantially
lessening competition in a particular market or at least reducing
competition in the short term. It may also be a completely rational
business decision that would also have been taken by a corporation
that does not have a substantial degree of power in the market.
However, it may be difficult to show the likely effect of the
conduct is to benefit the long-term interests of consumers. How
would that be demonstrated? In such a case the firm could well be
advised to refrain from the conduct altogether.
There is a risk that the new test may be no more "fit for
purpose" and possibly inferior to what we have today.
If we genuinely want to improve productivity and foster
innovation in Australia, the last thing we want to do is discourage
legitimate competitive practices.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
Persons listed may not be admitted in all states and
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This newsletter includes links to recent media releases, reports and cases relating to competition and consumer law.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).