CCL_MARKET_POWER Flashcards
What is the central issue in any competitive analysis under the CCA?
The central issue is not market definition, but market power.
What is the purpose of market definition?
To reveal the effective constraints upon a firm’s business behavior.
How is a market defined in competition law?
A market is defined by the area of close competition between firms, or the field of rivalry between them.
What is the definition of ‘market’ in Section 4E of the Act?
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.
What is the relationship between market definition and market power?
Defining the market and evaluating the degree of power in that market are part of the same process.
What does the ‘purposive approach’ mean in market definition?
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.
Is market definition an exact physical science?
No, it is not an exact physical science to identify a physical feature of the world.
Does market definition stay the same for the same industry in different cases?
No, market definition adopted in one case will not necessarily be the same in another case involving the same industry.
What is the goal of identifying the relevant market?
To discover the degree of the defendant’s market power.
What does market identification depend upon?
The issues for determination, the impugned conduct and the statutory provision proscribing anti-competitive behavior.
What are the key dimensions of a market?
Product, geographic, temporal and functional.
What is substitution?
Substitution is between one product and another, and between one source of supply and another, in response to changing prices.
What are the two forms of substitution relevant to the determination of the product and geographic dimensions of the market?
Demand-side and supply-side substitution.
What is demand-side substitution?
If buyers can shift on a large scale from product or area B to A, then the two should be combined.
What is supply-side substitution?
If producers can shift on a large scale from B to A, again they should be combined.
In practice, is it necessary to have both demand-side and supply-side substitution?
No, it is sufficient to have either demand-side or supply-side substitution.
What is the SSNIP test?
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.
What is the purpose of the SSNIP test?
To help define markets by identifying substitutes.
What is the focus of the SSNIP test?
The effects of competition.
What are some key questions to ask when applying the SSNIP test?
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?
What do courts often prefer when defining a market?
Courts will often prefer commercial reality to economic theory.
What is the geographic dimension of a market?
Areas over which patterns of cross elasticities of supply and demand are observed.
How does ACCC approach the geographic dimension?
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.
What factors does the ACCC consider in defining geographic markets?
Portability of the product, transportation costs, costs for customers to obtain supply from alternatives, and regulatory constraints.
What is the functional dimension of the market?
It considers distinct vertical stages of production and/or distribution.
What is the temporal dimension of the market?
It considers how markets change over time and the time frame in which substitution possibilities should be considered.
What is the ACCC’s starting point for timely entry for a new firm?
Entry within one to two years.
What is the definition of market power?
The ability to charge more or give less.
What is market power according to the ACCC?
The ability of a firm to profitably raise prices post-merger for a sustained period.
What does Section 46(4) of the CCA say about market power?
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.
What are some characteristics of market power?
The discretionary power to raise prices, the power to exclude entry by competitors, and freedom to engage in discretionary production and selling policies.
What is the relationship between market power and pricing?
Market power is the ability to raise prices above supply cost without rivals taking away customers in due time.
How does market power manifest other than influencing prices?
It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal.
What must the Court consider when determining if a corporation has a substantial degree of market power?
The extent to which the corporation is constrained by the conduct of competitors and customers.
What is a primary consideration in determining if a corporation has market power?
Barriers to entry.
What are barriers to entry?
Obstacles that a firm must overcome in order to enter a market.
Give some examples of barriers to entry.
Statutory requirements, economies of scale, vertical integration, brand loyalty, geographic limitations, and capital requirements.
Can a firm have a substantial market share but be unable to exercise market power?
Yes, if the firm is constrained by the countervailing power of buyers.
What does the term ‘substantial’ mean in the context of lessening competition?
Meaningful or relevant to the competitive process.
How do we evaluate whether conduct has the effect of substantially lessening competition?
By comparing the state of future competition in the market with the conduct to the state of future competition without the conduct.
What is a key factor that defines market boundaries?
The possibilities of substitution.
What does the definition of the market need to include?
Not only identical goods but also close substitutes.
What does the SSNIP test help to identify?
The firms (actual or potential competitors) that constrain the pricing and production decisions of the party in question.
What do the courts recognize about the SSNIP test?
The underlying principles of the SSNIP test, without always requiring detailed econometric evidence.
What is the starting point for the ACCC when delineating relevant markets?
Identifying the products and geographic regions actually or potentially supplied by the merger parties.
What does the ACCC focus on when defining markets?
Defining markets in areas of activity where competitive harm could occur.
How does the geographic market relate to price increases?
If buyers would turn to more remote suppliers in response to a price increase.
What is the key element that defines a market?
Substitution.
What does the ACCC consider to be an exercise of market power?
The ability to raise prices, lower the quality of products, reduce range or variety of products, lower customer service standards.
Is market share always an indicator of market power?
No, as illustrated by the BB case, it is not necessarily the case.
