Structural and Behavioural Market Power Under the Trade Practices Act : An Application to Predatory Pricing

Recent trade practices decisions in Australia emphasise a structural approach to market power. Modern economic analysis, however, highlights situations where firms that currently lack 'structural' market power may engage in strategic behaviour aimed at altering market structure. Such firms have 'behavioural' market power in the sense that their conduct is inconsistent with competitive behaviour and aims at creating structural market power. Predatory pricing provides a simple example of such strategic behaviour and the current Australian approach to market power may fail to detect such behaviour. In this paper, we consider how the approach to market power under s 46 of the Trade Practices Act has evolved over time and how this approach now differs from underlying economic principles. We discuss how existing provisions of s 46 can be consistently interpreted to allow for firms that have either structural market power or behavioural market power. We argue that by either recognising the legitimacy of behavioural market power or by taking a broader approach to market definition that encompasses a time period long enough to detect structural change, the courts can effectively use the current Act to determine if a firm with substantial market power has taken advantage of that power for an anti-competitive purpose