Anti-competitive agreements

Section 45 of the Competition and Consumer Act prohibits contracts, arrangements or understandings that are likely to substantially lessen competition in a market, even if that conduct does not meet the stricter definitions of other anti-competitive conduct such as cartels. A number of factors are considered by the courts to reach a decision:

Is there an 'agreement' caught by the Act?

Under the Act, agreements, contracts, arrangements and understandings possess similar meanings. Essentially they involve the development of a plan of action between two or more people that may not be enforceable at law but they have every intention of following.

In relation to the 'arrangement', the court has said:

... when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something whereby the parties to it accept mutual rights and obligations.

TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) FLR 83

As to 'understanding':

An understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding ...

Top Performance Motors Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 286

To arrive at an understanding or to make an arrangement it is not necessary for anything to be written down. In fact, such agreements are often not put into writing. Nothing need even be expressed—a ‘nod and wink’ is sufficient.

If necessary, the court will infer the requisite 'meeting of minds' from circumstantial evidence such as evidence of joint action, similar pricing structures, or even from evidence of opportunities the parties had to reach an understanding.

It is important to consider both what is actually said and what each party understands to be the position.

What is the market?

To determine whether conduct has any effect in a market, you need to determine what the market is. One widely-accepted judicial definition is the following:

A market is the area of close competition between firms or ... the field of rivalry between them. ... Within the bounds of a market there is substitution—substitution between one product and another, and between one source of supply and another, in response to changing prices. ... In determining the outer boundaries of the market we ask a quite simple but fundamental question: if the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction.

Queensland Cooperative Milling Association Ltd/Defiance Holdings Ltd, re proposed merger with Barnes Milling Ltd (1976) ATPR 40-012

A market has four important elements:

  • product
  • geography
  • level of function
  • time.

Product

The range of goods or services (including substitutes for them) that will satisfy customer requirements. Customer response to price changes is an important clue to whether products are in the same market.

Geography

The geographic area within which a product is traded—for example, the Sydney metropolitan newspaper market, the south-east Queensland gas market.

Level of function

The particular market level at which a company operates—for example, manufacturing, wholesale, retail.

Time

The period of time over which substitution possibilities are considered. Generally, substitution possibilities are considered for the period of the foreseeable future such that substitutes will constrain the exercise of significant market power by the merged entities.

Each of these items must be examined in coming to a conclusion regarding the relevant market.

Does the conduct substantially lessen competition in that market?

'Substantial' is an important concept in competition and consumer law and it arises in a number of provisions.

'Substantial’ has been defined in case law as large, weighty, big, real or of substance or not insubstantial. However it is not straightforward; the meaning of substantial depends on the context and in a relative sense.

An effect is considered to be substantial if it is important or weighty in relation to the size of the particular market.

In Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; (2000) ATPR 41-752, Justice French said that to work out whether competition is being substantially lessened...

...there [must] be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process.

Relevant sections of the Competition and Consumer Act

s.45 — Anti-competitive agreements

Other types of anti-competitive behaviour

Anti-competitive behaviour
Cartels
Misuse of market power

More information

Contact the ACCC