Competition Policy 1
Turn of 20th Century
Standard Oil: Sherman antitrust act
No monopolisation allowed
1974: real Trade Practices Act
No price fixing
No abuse of market power
No anticompetitive mergers
No exclusive dealing or resale price maintenance
1993: Hilmer reforms
Government-owned enterprises subject to competition
Privatisation and vertical separation: regulation of bottlenecks
Deregulation of telecommunications
Establishment and strengthening of ACCC
Federal Court of Australia
Judicial review of Trade Practices issues
Australian Competition Tribunal
Review of ACCC regulation
Assessment of mergers
Australian Competition and Consumer Commission
Enforcer of Trade Practices Act
Regulation and pricing oversight of utilities
Infrastructure pricing and service provision in energy,
Two-sides of Competition
Dealing with anti-competitive practices
Competition policy tries to outlaw practices that
impact on competition and market structure
Regulating market power
Where competition is unsuccessful, the
government directly regulates firms with market
How to assess mergers
The Basic Trade-Off
Loss in Surplus
Gain in Surplus
Steps in Merger Analysis
What market are the merging parties operating in?
Will the merged entity have greater market power?
Are there any efficiencies or public benefits associated with
Are there any divestitures or other actions the merging
parties could take to alleviate competition concerns?
Market definition is purposive
Depends upon the case under analysis
What are the constraints on price and
Will those outside the merger constrain pricing?
Who are the ‘outsiders’?
Demand-side and supply-side substitution
In practice, used for quantitative analysis
Compute market shares
What will happen to concentration following the
Will the merger lead to a substantial lessening of
Concentration and competition
Market shares: sales, output or capacity
CR4 (ACCC) or HHI (USDOJ)
Firm with 45% buys firm with 2%?
Two firms with 15% want to merge?
Why are firms large in the first place?
What about the elasticity of market demand?
Example I: Proposed
Example II: Fear
Example II: Reality?
Neutral Bad OK
B1 B1 B1
If marginal cost, pass through to prices and is pro-
If just fixed costs, no pass through but may have
But … do you need the merger to achieve this?
Do you need scale for innovation?
Do you need scale for export competition?
TPA allows the ACCC to accept Court-enforceable
Divestiture – but will anyone buy the assets?
But … is it practical to enforce these?
Key part of any negotiation with the ACCC
Don’t do it!
If need to, will have to justify benefits and get
Exclusive dealing and vertical integration
OK if don’t have market power
Bad if used to foreclose on rivals or raise their
Abuse of market power
What if you have some market power?
s46 of the TPA: a firm with a substantial
degree of power in a market cannot take
advantage of that power with the purpose of
harming a competitor or competition in a
Mini-Case I: Boral
Boral in its concrete masonry business in
Victoria was accused of predatory pricing
What did it do?
Faced with new entry (C&M), Boral dropped
prices below marginal cost
Did so for 3 years (94-96) at the same time as
Exit of some incumbents and stopped upon
Was this a violation of the TPA?
Mini-Case II: Melway
Melway had a disagreement with a distributor
and took away their exclusive distributorship
for some customers
Affected distributor claimed Melway was
abusing market power
Melway had 90% of the market for street
directories in Melbourne.
Mini-Case III: Rural Press
One of Rural Press’s subsidiaries – Bridge –
published a newspaper in Murray Bridge.
In a nearby area, Riverland, Waikerie published a
news paper there. It entered Murray Bridge with its
Rural Press threatened to sell a free paper in
Riverland unless Waikerie withdrew.
Waikerie did so.
ACCC sued both for price fixing and Rural Press for
abuse of market power.
Mini-Case IV: Safeway
Safeway engaged in a practice of deleting
entire lines of bread manufacturer’s product if
it was found that a nearby store was
discounting any of its lines
Tip Top moved to stopped discounting and
was found guilty of resale price maintenance
ACCC took Safeway to court over abuse of