If you are a dominant player in your industry, chances are you possess a degree of market power. It is not illegal to possess significant market power or attempt to acquire it through provision of goods or services. However, it is illegal to utilise it to illegitimately suppress competition, as firms are not allowed to engage in anti-competitive behaviour. Read on to find out about what constitutes a misuse of market power and its consequences.
What Is Market Power?
It refers to the ability of a firm to dictate pricing of a good or service within an industry. The level of power that you will possess is often in relation to the market share of the industry of which you are competing in. Generally, if you have a higher market share, you will have a greater influence upon the industry’s market price. As possessing market power is usually reflective of your business’s success it is not illegal to possess substantial power. The real issue is what you do with your power once you have acquired it. The Australian Competition and Consumers Commission (ACCC), has the authority to monitor industries and businesses for abuses of market power.
How Can a Business’s Power Be Determined?
It is not always easy to determine how much market power a business has. The following factors can assist in determining a firm’s power in its industry:
- The difficulty for new entrants to enter the market.
- The financial strength of the business.
- The ability of the business to restrict competition in your industry.
- The business’s ability to operate without significant reference to competitors, suppliers and customers’ decisions and operations.
Furthermore, a competitive analysis can assist you in understanding how much power your business possesses.
What Is Classified as a Misuse of Market Power?
Misuse of market power is governed by S 46 of the Competition and Consumer Act 2010 (Cth). The key feature of this provision, is to prohibit firms with substantial market power that has the purpose or likely effect to substantially restrict competition. However, if you done the same action without market power, then your activities are not a misuse of your power. Furthermore, if your industry has closely substituted products, the likelihood of you misusing your power will diminish. Furthermore, businesses are allowed to misuse it if they apply to the ACCC because the misuse will be in the ‘public interest’.
Thus, keep in mind the consequences of misusing market power if your business has substantial market power. Furthermore, if unsure, you should get in contact with a competition lawyer to provide you with relevant legal advice.
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