The concept of “Substantially Lessening Competition” is a test used to determine whether certain conduct breaches competition laws in Australia.
Substantially lessening competition refers to conduct that negatively impacts competition in a market to a significant degree. It involves reducing the intensity of competition, which can lead to:
The conduct must have some meaningful impact and be relevant to the competitive process. Further, it must have the effect or likely effect of preventing or hindering competition. The word ‘substantial’ conveys a high threshold, but it is not.
The ultimate goal is to protect competition and prevent behaviour that harms consumers and businesses.
This article is written by our Director, an Australian eCommerce lawyer.
The follow factors are relevant to determining whether behaviour substantially lessens competition:
The Competition and Consumer Act defines “market” as a market in Australia. In relation to goods or services, it extends to any goods and services which are substitutable for or competitive with, those goods or services.
To identify the relevant ‘market’, you will need to consider:
Market power refers to the degree of control a company has over prices and goods and/or services. Having market power is not anti-competitive. However, misusing market power to reduce competition is anti-competitive.
Market structure refers to the number of competitors, barriers to entry, and market concentration.
To figure out who is a competitor, consider:
A company can be both a supplier and a customer of another business.
Consumers may be affected by higher prices, less choice, or reduced quality of goods or services.
If demand and supply would continue largely unaffected by the behaviour, the conduct is unlikely to be unlawful.
The substantially lessening competition test is relevant to various sections of the Competition and Consumer Act 2010 in assessing whether conduct is anti-competitive. Those sections are set out below. Each of the activities below are only illegal if they substantially lessen competition.
You don’t need to have a written contract for the sale of goods or services. Cooperation between parties, and even sharing information, can be illegal. However, cooperation between competitors is more likely to have the effect of substantially lessening competition.
Dominant companies are not allowed to abuse their market position to harm competition.
Exclusive dealing occurs when a business is limited by its trading partner from:
Exclusivity agreements are not uncommon. However, care must be taken where the effect of an exclusivity arrangement is anti-competitive.
Consolidation that reduces consumer choices, increases prices, or decreases innovation and product quality may lessen competition.
The ACCC said that Flight Centre attempted to induce airlines to agree not to offer lower prices on their websites than those available through Flight Centre. The ACCC said this would potentially reduce competition.
The High Court found that Flight Centre’s conduct did substantially lessen competition by attempting to control pricing across different sales channels. This was despite Flight Centre not being a direct competitor to the airlines.
Although Flight Centre was an agent, its actions impacted the competitive process in a manner that could have resulted in less competitive pricing options for consumers.
Visa was accused of restricting the ability of Dynamic Currency Conversion (DCC) providers from offering services on Visa’s network. The ACCC argued this would substantially lessen competition in the currency conversion market.
Visa’s conduct was found to substantially lessen competition by preventing DCC providers from competing effectively in the market. Visa’s conduct prevented merchants and consumers from accessing competitive DCC services. This limited choice and reduced market competitiveness.
The ACCC claimed that Pfizer used its market power to lock in pharmacies to its Lipitor cholesterol-lowering drug before losing patent protection. The result was said to potentially lessen competition in the generic drug market.
The Federal Court ruled in favour of Pfizer. The Court found that while Pfizer’s behaviour was strategic, it did not substantially lessen competition because the market was expected to shift to generic competitors regardless.
The Court highlighted that generic competitors were inevitable and there was no substantial impact on their ability to enter the market. Therefore, competition wasn’t significantly reduced.
Conduct that substantially lessens competition can lead to significant penalties. This may include fines, disqualification of directors, or orders for companies to change their conduct. The ACCC may also block mergers or acquisitions.
If the ACCC or a private party takes legal action, courts are responsible for determining whether the conduct substantially lessens competition. Courts will look at evidence, market conditions, and the effects of the conduct on competition.
By breaching sections 45, 46, 47 or 50:
Courts can also issue injunctions to stop anti-competitive conduct.
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