Whether particular conduct is a misuse of market power will always depend on the circumstances. The following conduct by a business with a substantial degree of market power could amount to a misuse of market power if it has the purpose, effect or likely effect of substantially lessening competition in a relevant market:
- refusal to deal: refusing to supply goods or services without a legitimate reason.
- restricting access to an essential input: restricting or preventing access to non-substitutable resources that are indispensable for the provision of goods and services.
- predatory pricing: selling goods significantly below cost price for the purpose of eliminating or substantially damaging a competitor or discouraging potential competitors from entering the market.
- loyalty rebates: offering retail customers volume rebates which are conditional on a retailer purchasing a large proportion of its requirements from the firm.
- margin or price squeeze: a firm with a substantial degree of market power in the supply of a key input charging competitors a price that makes it uncommercial for them to offer a competitive price in the downstream market.
- tying and bundling: selling one good or service on the condition that the purchaser buys another good or service from the supplier (tying), or only offers 2 products as a package, or at a discount when packaged (bundling).
Example: Refusal to deal
While businesses usually have the right to decide who they trade with, it may be illegal for a business with substantial market power to refuse to supply its goods or services without a legitimate reason. For example, Firm C was the only cement works in a regional town and also owned all the ready-mix concrete plants servicing the town. Cement is an essential ingredient in ready-mix concrete. Firm C had a substantial degree of market power in the town’s cement supply market.
A new entrant, Firm D had successful operations elsewhere and was planning to set up a ready-mix concrete plant in the town. Firm D approached Firm C to supply it with cement, but was refused supply. The effect of Firm C’s refusal was to prevent Firm D from entering the market and competing with Firm C. The refusal to deal in this example would raise concerns as a misuse of market power in breach of the Competition and Consumer Act 2010.