On 1 December 2016, the Senate referred the provisions of the
Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (the
bill) to the Senate Economics Legislation Committee for inquiry and report by
16 February 2017.
Conduct of the inquiry
The committee advertised the inquiry on its website. It also wrote to
relevant stakeholders and interested parties inviting submissions by 9 January
2017. The committee received 35 submissions, which are listed at Appendix 1.
The committee did not hold any public hearings for the inquiry.
The committee thanks all individuals and organisations that contributed
to the inquiry.
Overview of the bill
The bill contains two schedules. Schedule 1 to the bill amends section
46 of the Competition and Consumer Act 2010 (the CCA) to strengthen the
prohibition of the misuse of market power by corporations and better target
anti-competitive conduct by corporations with a substantial degree of market
Schedule 1 achieves this by amending section 46 to prohibit a
corporation with a substantial degree of market power engaging in conduct with
the purpose, effect or likely effect of substantially lessening competition.
For conduct to be considered a misuse of market power, it must occur in a market
where there is an actual or likely supply or acquisition of goods or services
by the corporation or another prescribed entity.
Schedule 1 also amends section 46 to:
provide guidance in the form of a list of factors that must be
taken into account when assessing whether conduct has the purpose, effect or
likely effect of substantially lessening competition;
simplify the provision by removing the specific prohibition
against predatory pricing.
The concept of the 'purpose, effect or likely effect of substantially
lessening competition', commonly referred to as an 'effects test', is new to
section 46, but is consistent with existing legal concepts within the CCA.
Schedule 2 to the bill makes consequential amendments to repeal the telecommunications-specific
anti-competitive conduct provisions in Division 2 of Part XIB of the Act, and the competition notices and exemption order regime in
Division 3 of Part XIB. These provisions are no longer necessary or appropriate
given the proposed amendments to section 46 (as outlined in schedule 1 to the
The bill has no significant financial impact on Commonwealth expenditure
or revenue. The amendments contained in schedule 1 of the bill are expected to
have a compliance cost impact of $2.5 million per year over the next 10 years.
Background and consultation
Misuse of market power provision
The misuse of market power provision (section 46) of the CCA regulates
unilateral anti-competitive conduct. The role of section 46 straddles a fine
line to distinguish between vigorous competitive activity, which provides
certainty and underpins successful and efficient market outcomes, from
anti-competitive, monopolistic practices that harm the competitive process.
In determining whether particular conduct of a firm constitutes a misuse
of market power under section 46 in its current form, two legal tests must be
First, the conduct must have involved taking advantage of
the firm's market power.
Second, the conduct must have been undertaken for the purpose
of eliminating or substantially damaging a competitor, preventing the entry of
a person into a market, or deterring or preventing a person from engaging in
On 24 March 2014, the government commissioned an independent Competition
Policy Review (the Harper Review) of Australia's competition framework. A key
focus of the Harper Review was to identify impediments across the economy that
restrict competition and reduce productivity.
Described as the first 'root and branch' review of Australia's
competition laws for 20 years, the review panel, chaired by Professor Ian
Harper, undertook extensive consultation with businesses, consumers and other
industry stakeholders. The misuse of market power was one of the top issues
raised in submissions to the review, with stakeholder opinions divided as to
the efficacy of section 46 in deterring anti-competitive conduct.
On 31 March 2015, the Harper Review released its Final Report. The
report made 56 recommendations on Australia's competition framework, covering
most sectors of the economy and with implications for all levels of government.
In examining the misuse of market power provision, the review panel
considered section 46 to be deficient in its current form. It noted the
uniqueness and size of the Australian market and the need to have an effective
mechanism to deal with market consolidation and excessive power:
An effective provision to deal with unilateral anti-competitive
conduct is a necessary part of competition law. This is particularly the case
in Australia where the small size of the Australian economy frequently leads to
concentrated markets. The Panel considers that section 46 can be re-framed in a
manner that will improve its effectiveness in targeting anti-competitive
In particular, the panel noted the limitations of the 'take advantage'
and 'purpose' limbs of the current legislation, remarking that:
The 'take advantage' limb of section 46 is not a useful test
by which to distinguish competitive from anti-competitive unilateral conduct.
The 'purpose' limb, that prohibits conduct if it has the purpose of harming
competitors, is misdirected as a matter of policy and out of step with equivalent
The review panel also commented on the substantial difficulties in
interpretation of the expression 'take advantage', commenting that its meaning
is 'subtle and difficult to apply in practice'.
Consequently, the review recommended that section 46 be re-framed to
prohibit firms with a substantial degree of market power from engaging in
conduct that has the purpose, effect or likely effect of substantially
lessening competition in that or any other market.
To ensure that conduct is considered in a holistic manner, the review
also recommended that re-framed legislation list particular factors indicative
of pro-competitive and anti-competitive conduct, and that these factors must be
considered when determining whether conduct has the purpose, effect or likely
effect of substantially lessening competition.
While the factors are not exhaustive, they are indicative of
pro-competitive and anti-competitive conduct, and provide guidance about the
typical effect of these types of conduct on competition in a market. The
mandatory factors also aim to make it clear that the re-framed section 46 is
not intended to prevent pro-competitive conduct, and therefore ensure that
conduct is considered in a holistic manner.
Government response to the Harper
On 24 November 2015, the government released its response to the Harper
Review. The government acknowledged the concerns raised throughout the review
process regarding the operation of the misuse of market power provision and,
given the importance of the issue for affected stakeholders, committed to
consult further on options to reform the provision.
Following on from the government's response to the Harper Review, on 11 December 2015 the Treasurer, the Hon Scott Morrison MP, released a discussion
paper on section 46. The Treasurer explained the importance of this final round
This is an issue on which many people have strong views and
it is important those views are heard on a range of options, not only that recommended
by the Harper Review.
The Government acknowledges concerns about the operation of
the provision and the need to ensure it enhances, rather than inhibits
competition. For this reason, we want to explore all the options available.
On 16 March 2016, the government announced its final position on the
Harper Review's recommendation, agreeing to adopt in full the review's
recommended changes to section 46 of the CCA.
The Prime Minister, Treasurer and Assistant Treasurer emphasised the government's
commitment to strengthening Australia's competition policy, commenting that:
...the amendment of Section 46 to deal with unilateral
anti-competitive conduct is an important step to ensure Australia has the best
possible competition framework to support innovation and boost economic growth
The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer
MP, explained how the proposed amendments will support and promote pro-competitive conduct of businesses for the ultimate benefit of Australian
These amendments will make markets work better for the
benefit of all Australians and help to lift our long-term productivity growth.
They will ensure that all business can compete on a level playing field,
rewarding innovative and dynamic businesses that provide the best services at
the lowest cost. This will benefit households by giving them more choice and
better value products and services.
The next chapter of this report considers the views expressed in
submissions received by the committee.
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