Legal Writing - Day 5

Market Power and Competition

There is an inverse relationship between level of competition and existence of market power. The more competitive a market is, the less likely that any one firm has market power. It should always be remembered that defining a market and evaluating the degree of market power are part of the same process (QWI). We need to define a market that best enables an evaluation of the conduct at issue, consider the existence of structures and patterns of behaviour that might facilitate the exercise of market power by a firm and then evaluate whether the firm's conduct might substantially lessen competition in breach of the Act. 

What is Market Power?

Acquisition of power and influence in the market is a natural consequence of the forces of competition that the Act encourages. The Act does not punish acquisition of market power but it does punish use of such market power for anti-competitive purposes. 

The meaning of market power is not defined in the Act thus it is left to the court. In Dowling v Dalgety Australia Ltd, the court summarises the indicators of market power as follow: (a) the ability of a firm to raise price above the supply cost without rivals taking away customer in due time; (b) the extent to which the conduct of the firm under scrutiny in the market is constrained by the conduct of competitors or potential competitors;(c) market share of the firm (not determinative); (d) the extent of barriers to entry (e) presence of vertical integration. 

Dawson J in Re QCMA focused on other discretionary behaviour in defining market power as the ability to engage persistently in practices directed at excluding competition such as exclusive dealing, tying arrangement, predatory pricing or refusal to deal. This is consistent with Kaysen and Turner's definition, who define market power as the ability of a firm to behave consistently in a manner different from the behaviour that a competitive market would enforce on a firm facing similar cost and demand condition.