'Why can't a woman be more like a man?': American and Australian approaches to exclusionary conduct

Melbourne University Law Review, Dec, 2007 by George A. Hay, Rhonda L. Smith

[Much of antitrust law (in the United States) or trade practices law (in Australia) is" about 'exclusionary conduct': things that large firms do to acquire an even larger share of the market or preserve their large market share .from being eroded by smaller rivals or new entrants. The object of antitrust or trade practices law is to separate the kind of exclusionary conduct that is applauded and approved from that which is condemned and penalised. The main purpose of this article is to discuss, in broad terms, how [section] 2 of the Sherman Act deals with exclusionary conduct and to compare that with the approach taken by s 46 of the Trade Practices Act 1974 (Cth). This article will explore whether there are deficiencies in the Trade Practices Act 1974 (Cth) s 46 approach that can (and should) be 'cured' by making it resemble [section] 2 of the Sherman Act more closely.]

CONTENTS

I   Introduction
II  Preliminary Consideration: The Definition of Monopoly Power
III Taxonomy of Exclusionary Conduct
       A Predatory Pricing and Predatory Buying
       B Refusal to Deal or Cooperate with Rivals
       C Exclusive Dealing Contracts and Comparable Arrangements
       D Dirty Tricks
IV  Section 46 of the Trade Practices Act 1974 (Cth)
       A Meaning of 'Substantial Degree of Power in a Market'.
       B Predatory Pricing
       C Refusal to Deal
       D Exclusive Dealing Contracts
            1 Stirling Harbour
            2 Baxter Healthcare
       E Dirty Tricks
            1 Rural Press
            2 NT Power
V   Conclusions

I INTRODUCTION

Much of antitrust law (in the United States) or trade practices law (in Australia) is about 'exclusionary conduct': things that large firms do to acquire an even larger share of the market or preserve their large market share from being eroded by smaller rivals or new entrants. Of course, not everything that bigger firms do to disadvantage smaller rivals is unlawful. Indeed, at the heart of a competitive economy is the notion that firms should compete aggressively to win the hearts and minds (and pocketbooks) of consumers (thereby 'excluding' others) and, when they succeed, they are entitled to the profits that come with that success. So the object of antitrust or trade practices law is to separate the kind of exclusionary conduct that is applauded and approved from that which is condemned and penalised.

In the US, the main vehicle for policing inappropriate exclusionary conduct by large firms against smaller competitors is [section] 2 of the Sherman Act, (1) which prohibits monopolisation or attempted monopolisation, although [section] 1 (dealing with agreements in restraint of trade) occasionally plays a role as well. In Australia, the main vehicle is s 46 of the Trade Practices Act 1974 (Cth) ('TPA') which, generally speaking, prohibits the misuse of market power, although ss 45 (dealing with agreements and understandings) and 47 (dealing with certain kinds of exclusive arrangements for distribution or sale) of the TPA are occasionally used for this purpose.

The main purpose of this article is to discuss, in broad terms, how [section] 2 of the Sherman Act deals with exclusionary conduct and to compare that with the approach taken by s 46 of the TPA. Those who are dissatisfied with the outcome of certain individual cases in Australia, or those interested in reform generally, are occasionally heard to muse about whether s 46 of the TPA should be 'fixed' in some way. One possible way that is sometimes discussed is to make it resemble [section] 2 of the Sherman Act more closely. One of the issues that this article will explore is whether there are deficiencies in the TPA s 46 approach that can (and should) be 'cured' by making it resemble [section] 2 of the Sherman Act more closely.

Unfortunately for a neat comparative analysis, the law with respect to [section] 2 of the Sherman Act is a rapidly moving target. In the past several years, there have been a number of significant decisions on [section] 2 of the Sherman Act that have altered the landscape substantially. (2) Further, the TPA s 46 approach to some problems may change as a result of the so-called 'Birdsville Amendment' and other amendments introduced by the Trade Practices Amendment Act [No 1] 2007 (Cth). (3) Therefore, to set up the comparison of [section] 2 of the Sherman Act and s 46 of the TPA, this article must first describe recent trends in [section] 2 monopolisation law. Indeed, to some extent, the main point of this article is that the US law dealing with exclusionary conduct has gone through something of a 'quiet revolution' in recent years, with further changes yet to come. (4) Those contemplating the importation of the US approach into the Australian legal landscape should be sure of what they are getting.

II PRELIMINARY CONSIDERATION: THE DEFINITION OF MONOPOLY POWER

Except possibly in cases where the only claim is an attempt to monopolise, (5) the threshold issue in a Sherman Act [section] 2 case is whether the defendant has monopoly power. While, literally, monopoly means 'single seller', it is a rare case where there is only one firm in the market. So we need a working definition of monopoly and monopoly power that allows for the possibility of some degree of competition. The most often quoted definition is from United States v EI du Pont de Nemours & Co ('Cellophane Case'), (6) where the US Supreme Court defined monopoly power as 'the power to control prices or exclude competition.' (7) This phrase, particularly because of the disjunctive 'or', suggests that there are two possible tests for monopoly power, and that a firm will be found to have monopoly power if either is satisfied. However, as has been stated elsewhere, (8) for an economist, the power to control prices in any meaningful way depends on the absence of competition. Therefore, the 'power to exclude competition' (9) is what permits 'the power to control prices', (10) They are simply two sides of the same coin. (11)