Misuse of market power

A business with a substantial degree of power in a market is not allowed to use this power for the purpose of eliminating or substantially damaging a competitor or to prevent a business from entering into a market. This behaviour is referred to as ‘misuse of market power’.

Misuse of market power test

The possession of market power of itself is not unlawful.

To determine whether there has been a misuse of market power, the courts will consider three questions:

  • does the company have substantial market power?
  • is it taking advantage of that power?
  • is it using the power for an illegal purpose?

Substantial market power

Market power is the ability of a business to insulate itself from competition.

The market may be considered by asking three questions:

  • which products are sufficiently close substitutes (the relevant product market)?
  • which other businesses are sufficiently nearby to compete effectively (the relevant geographic market)?
  • what is the functional level of the market (this relates to the stage(s) in the production/distribution process covered by a market)?

Within that market a business’s market power may be determined by a combination of factors such as:

  • how difficult it is for competitors to enter the market
  • the business’s ability to behave with little regard to what its competitors, suppliers or customers do
  • the market share of the business
  • the financial strength of the business
  • the ability of the business to consistently restrict competition.

Taking advantage of market power

In determining whether, by engaging in conduct, a business has taken advantage of its substantial degree of power in a market, the court may have regard to the following factors:

  • whether the conduct was materially facilitated by the business's substantial degree of power in the market
  • whether the business engaged in the conduct in reliance on its substantial degree of power in the market
  • whether it’s likely that the business would have engaged in the conduct if it did not have a substantial degree of power in the market
  • whether the conduct is otherwise related to the business's substantial degree of power in the market.

Illegal purpose

It is not illegal to have market power or to use it. Conduct by a business with market power is only a contravention of the Competition and Consumer Act 2010 (CCA) if it is carried out for an illegal purpose.

The CCA spells out illegal purposes as follows:

  • eliminating or substantially damaging a competitor
  • preventing the entry of a person into that or any other market
  • deterring or preventing a person from engaging in competitive conduct in any market.

The courts have established that the illegal purpose need not be the only purpose, nor even a dominant purpose, of the conduct in question. It is enough that it be one of the purposes, and a substantial one.

Predatory pricing

One way in which a business may misuse its market power is to set prices at a sufficiently low level with the purpose of substantially damaging or eliminating a competitor.  This is known as predatory pricing

Relevant sections of the Competition and Consumer Act

s.46 — Misuse of market power

Report potential misuse of market power

Contact the ACCC

More information

Anti-competitive behaviour
Predatory pricing
Refusal to supply