CCL_MARKET_POWER

Question 1

What is the central issue in any competitive analysis under the CCA?

Answer 1

The central issue is not market definition, but market power.

Question 2

What is the purpose of market definition?

Answer 2

To reveal the effective constraints upon a firm’s business behavior.

Question 3

How is a market defined in competition law?

Answer 3

A market is defined by the area of close competition between firms, or the field of rivalry between them.

Question 4

What is the definition of ‘market’ in Section 4E of the Act?

Answer 4

A market in Australia, including a market for goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.

Question 5

What is the relationship between market definition and market power?

Answer 5

Defining the market and evaluating the degree of power in that market are part of the same process.

Question 6

What does the ‘purposive approach’ mean in market definition?

Answer 6

Markets are not defined in the abstract, but for the purpose of analyzing the process of competition relevant to the allegations of anti-competitive conduct.

Question 7

Is market definition an exact physical science?

Answer 7

No, it is not an exact physical science to identify a physical feature of the world.

Question 8

Does market definition stay the same for the same industry in different cases?

Answer 8

No, market definition adopted in one case will not necessarily be the same in another case involving the same industry.

Question 9

What is the goal of identifying the relevant market?

Answer 9

To discover the degree of the defendant’s market power.

Question 10

What does market identification depend upon?

Answer 10

The issues for determination, the impugned conduct and the statutory provision proscribing anti-competitive behavior.

Question 11

What are the key dimensions of a market?

Answer 11

Product, geographic, temporal and functional.

Question 12

What is substitution?

Answer 12

Substitution is between one product and another, and between one source of supply and another, in response to changing prices.

Question 13

What are the two forms of substitution relevant to the determination of the product and geographic dimensions of the market?

Answer 13

Demand-side and supply-side substitution.

Question 14

What is demand-side substitution?

Answer 14

If buyers can shift on a large scale from product or area B to A, then the two should be combined.

Question 15

What is supply-side substitution?

Answer 15

If producers can shift on a large scale from B to A, again they should be combined.

Question 16

In practice, is it necessary to have both demand-side and supply-side substitution?

Answer 16

No, it is sufficient to have either demand-side or supply-side substitution.

Question 17

What is the SSNIP test?

Answer 17

The SSNIP test (or hypothetical monopolist test) asks whether a hypothetical monopolist could sustain a 5%-10% increase in price over a 12-month period.

Question 18

What is the purpose of the SSNIP test?

Answer 18

To help define markets by identifying substitutes.

Question 19

What is the focus of the SSNIP test?

Answer 19

The effects of competition.

Question 20

What are some key questions to ask when applying the SSNIP test?

Answer 20

What happens if the party whose conduct is in issue raises its price? Is there much of a reaction on the part of buyers? Do the buyers switch to a rival seller?

Question 21

What do courts often prefer when defining a market?

Answer 21

Courts will often prefer commercial reality to economic theory.

Question 22

What is the geographic dimension of a market?

Answer 22

Areas over which patterns of cross elasticities of supply and demand are observed.

Question 23

How does ACCC approach the geographic dimension?

Answer 23

The process begins with the narrowest geographic area and one asks whether or not a hypothetical monopolist could or could not sustain a 5%-10% increase in price.

Question 24

What factors does the ACCC consider in defining geographic markets?

Answer 24

Portability of the product, transportation costs, costs for customers to obtain supply from alternatives, and regulatory constraints.

Question 25

What is the functional dimension of the market?

Answer 25

It considers distinct vertical stages of production and/or distribution.

Question 26

What is the temporal dimension of the market?

Answer 26

It considers how markets change over time and the time frame in which substitution possibilities should be considered.

Question 27

What is the ACCC's starting point for timely entry for a new firm?

Answer 27

Entry within one to two years.

Question 28

What is the definition of market power?

Answer 28

The ability to charge more or give less.

Question 29

What is market power according to the ACCC?

Answer 29

The ability of a firm to profitably raise prices post-merger for a sustained period.

Question 30

What does Section 46(4) of the CCA say about market power?

Answer 30

It provides guidance on determining the degree of power a body corporate has in a market by looking at how constrained the body is by competitors and customers.

Question 31

What are some characteristics of market power?

Answer 31

The discretionary power to raise prices, the power to exclude entry by competitors, and freedom to engage in discretionary production and selling policies.

Question 32

What is the relationship between market power and pricing?

Answer 32

Market power is the ability to raise prices above supply cost without rivals taking away customers in due time.

Question 33

How does market power manifest other than influencing prices?

Answer 33

It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal.

Question 34

What must the Court consider when determining if a corporation has a substantial degree of market power?

Answer 34

The extent to which the corporation is constrained by the conduct of competitors and customers.

Question 35

What is a primary consideration in determining if a corporation has market power?

Answer 35

Barriers to entry.

Question 36

What are barriers to entry?

Answer 36

Obstacles that a firm must overcome in order to enter a market.

Question 37

Give some examples of barriers to entry.

Answer 37

Statutory requirements, economies of scale, vertical integration, brand loyalty, geographic limitations, and capital requirements.

Question 38

Can a firm have a substantial market share but be unable to exercise market power?

Answer 38

Yes, if the firm is constrained by the countervailing power of buyers.

Question 39

What does the term 'substantial' mean in the context of lessening competition?

Answer 39

Meaningful or relevant to the competitive process.

Question 40

How do we evaluate whether conduct has the effect of substantially lessening competition?

Answer 40

By comparing the state of future competition in the market with the conduct to the state of future competition without the conduct.

Question 41

What is a key factor that defines market boundaries?

Answer 41

The possibilities of substitution.

Question 42

What does the definition of the market need to include?

Answer 42

Not only identical goods but also close substitutes.

Question 43

What does the SSNIP test help to identify?

Answer 43

The firms (actual or potential competitors) that constrain the pricing and production decisions of the party in question.

Question 44

What do the courts recognize about the SSNIP test?

Answer 44

The underlying principles of the SSNIP test, without always requiring detailed econometric evidence.

Question 45

What is the starting point for the ACCC when delineating relevant markets?

Answer 45

Identifying the products and geographic regions actually or potentially supplied by the merger parties.

Question 46

What does the ACCC focus on when defining markets?

Answer 46

Defining markets in areas of activity where competitive harm could occur.

Question 47

How does the geographic market relate to price increases?

Answer 47

If buyers would turn to more remote suppliers in response to a price increase.

Question 48

What is the key element that defines a market?

Answer 48

Substitution.

Question 49

What does the ACCC consider to be an exercise of market power?

Answer 49

The ability to raise prices, lower the quality of products, reduce range or variety of products, lower customer service standards.

Question 50

Is market share always an indicator of market power?

Answer 50

No, as illustrated by the BB case, it is not necessarily the case.