Re Queensland Co-Op Milling Association Limited and Defiance Holdings Limited (QCMA)

Snapshot

Trade Practices Tribunal

Year
1976

Citations
(1976) 8 ALR 481
(1976) ATPR 40-012

President
Justice Woodward

Members
Shipton
Brunt (Maureen)

Application from
Trade Practices Commission

Issue
Trade Practices Economics
Mergers

Copyright

Facts

This Tribunal decision arose from independent proposals made by QCMA and Defiance to take control of another company, Barnes.

All were flour milling firms in Queensland.

They sought authorisation or clearance for the proposals and were refused by the TPC.

They then sought review of the TPC's decision by the Tribunal.

Held

The Tribunal refused to review the applications.

The significance of the case, however, lies not in this refusal based on the merger law and procedure at the time, but in the Tribunal's discussion of economic concepts, including 'market' and 'competition'.

On the issue of competition

[from ALR 515[40]; ATPR, 17,246] 'Competition expresses itself as rivalrous market behaviour. …

In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers.

Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these:

(1) the number and size distribution of independent sellers, especially the degree of market concentration

(2) the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market

(3) the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion

(4) the character of ‘vertical relationships’ with the customers and with suppliers and the extent of vertical integration

(5) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities.

Of all these elements of market structure, no doubt the most important is (ii), the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new plant into a market which operates as the ultimate regulator of competitive conduct.'

On the issue of market

[from ALR 517]:

'... the identification of markets must be the essential first step in assessment of present competition and likely competitive effects. In our view the usefulness of the "market" concept goes beyond the determination of market concentration or the identification of rivalrous relationships between sellers. ...

[518] We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them (if there is no close competition there is of course a monopolistic market). Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. ...

It is the possibilities of such substitution which set the limits upon a firm's ability to "give less and charge more". Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to "give less and charge more" would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics, the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, ie a relatively high cross-elasticity of demand or cross-elasticity of supply?'

On the issue of market power

[from ALR 515[25]; ATPR, 17,246] '... the antithesis of competition is undue market power, in the sense of the power to raise price and exclude entry. That power may or may not be exercised. Rather, where there is significant market power the firm (or group of firms acting in concert) is sufficiently free from market pressures to ‘administer’ its own production and selling policies at its discretion. Firms may be public spirited in their motivation; but if their business conduct is not subject to severe market constraints, this is not competition.'.