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

• Jurisdiction: Australia
• Date: 01 December 2007
• Author: Hay, George A.

[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)

While plaintiff lawyers will prefer the 'power to exclude' language, (12) the standard definition of monopoly power today 'is the ability [of a firm] profitably to maintain prices above [the] competitive levels for a significant period of time', as derived from the US Department of Justice and the Federal Trade Commission's Horizontal Merger Guidelines ('Merger Guidelines'). (13) While the Merger Guidelines actually refer to market power, (14) economists acknowledge that, as a matter of economic theory, there is no real distinction between market power and monopoly power. (15) Where the law requires such a distinction, the standard response is that monopoly power is simply 'a high degree of market power.' (16) In practice, courts are routinely willing to infer market power from a significant market share (17) and monopoly power from an even higher market share. (18) In any event, the important point is that the ability to exclude one or more individual competitors will not normally be seen as sufficient to establish monopoly power.

It should also be noted at this point that the possession of monopoly power in and of itself does not constitute a violation of [section] 2 of the Sherman Act--monopoly is not a status offence. (19) Moreover, while monopoly power is the ability to profitably charge prices above the competitive level, (20) it is also now clear that charging monopoly prices does not convert the possession of monopoly power into a violation. While the policy reasons for this basic principle were set out as early as 1945 in the landmark case of United States v Aluminum Co of America ('Alcoa'), (21) the clearest statement of the principle is to be found in the recent case of Trinko, which is discussed below. (22)

III TAXONOMY OF EXCLUSIONARY CONDUCT

It is frequently said that the US antitrust laws are intended to preserve 'competition, not competitors'. (23) As consumers, we like it when firms, even already large firms, strive for our spending dollar by charging lower prices and/or building a better product, even if that has the consequence of taking business away from smaller rivals. Hence, the antitrust laws try to prevent only certain ways of 'excluding' rivals, and the 100-plus year struggle under [section] 2 of the Sherman Act has been to sort out the prohibited from the permitted ways. (24) While attempts to categorise conduct inevitably risk oversimplification, categorisation also has some benefits. In that spirit, the four principal ways of excluding rivals that the antitrust laws seek to scrutinise carefully can be described as the following:

1 predatory pricing and predatory buying;

2 refusal to sell to or cooperate with rivals;

3 exclusive dealing contracts and comparable arrangements; and

4 a catch-all category we label 'dirty tricks'.

The purpose of this Part of the article is to describe each category and detail, where relevant, how the law dealing with it has evolved in recent years.

A Predatory Pricing and Predatory Buying

As mentioned earlier, one way that a large firm can seek to gain market share at the expense of smaller rivals is to sell its products at a very low price. While it would appear that this should be good for consumers, antitrust has always wrestled with the question of whether there can be too much of a good thing. If the (temporary) low prices result in the elimination of all the remaining competitors, the large firm may be in a position to charge supra-competitive prices for a sustained period. Of course, the mere fact that one or more individual competitors cannot survive at such low prices and wind up dropping by the wayside, should not, in isolation, be enough to give pause. However, one can certainly imagine the structure of the market changing so dramatically in response to a period of intense price-cutting that, when the dust has settled, consumers overall are worse off. (25) In such a situation--in an ideal world--one would want to be able to label the episode as constituting 'predatory pricing' and subject it to condemnation under the provisions of the Sherman Act.

One can...