Geographic Market Definition in Competition Law

Published date01 December 1983
Date01 December 1983
DOI10.1177/0067205X8301300402
Subject MatterArticle
GEOGRAPmC MARKET DEFINITION
IN
COMPETITION LAW
BY
G
DE
Q WALKER*
CONTENTS
I NATURE AND FUNCTIONING OF GEOGRAPHIC
MARKET DEFINITION 299
A General Considerations 300
B Proper Product Market a Prerequisite 302
C
"A
Market in Australia" 304
D Present Facts, Statutory Language and
Use
of
Results 305
II
ORTHODOX APPROACHES 307
A Price Relationships 307
B Normal Sales and Purchase Patterns 308
C Particular Factors 311
( 1) Transport Costs 311
(2)
Legal Barriers 313
(3)
Customer Convenience and Preference 314
(4)
Trader Perceptions 315
III THE LIFO-LOFI APPROACH 316
IV MARKET SIZE, IMPORTS AND EXPORTS 320
A
The
Size
of
the Market 320
B Foreign Production 321
V CONCLUSIONS 321
I NATURE AND FUNCTION OF GEOGRAPHIC MARKET
DEFINITION
The notion of the relevant market, together with the process for identifying
it,
is
a construct used in competition law in order to determine whether
competition exists between two or more producers for the purposes of
Part N of the Trade Practices Act 1974 (Cth).
This legislation confers upon the courts and the Trade Practices Tribunal
the duty to decide whether certain courses of conduct have the purpose, or
have (or are likely to have) the effect, of substantially lessening compe-
tition in a market. The market delineation process provides the first in a
set of stepping-stones which enable the courts to discharge this task in the
principled and certain manner that
is
required by the doctrine of the rule of
law. The procedures comprised within it enable the court (or other trier of
fact) to organise complex fact situations and classify them in such a way
as to enable competition policy, as embodied in legislation such
as
the
Trade Practices Act, to be intelligently applied.
It
permits a degree of
quantitative evaluation which in practice would not be possible
if
the
lessening-of-competition issue were attacked directly.
In
all systems of competition law it
is
accepted that the relevant market
has three dimensions: the product market, the functional level (such as
manufacturing or importing, wholesaling, or retailing) and the geographic
* LLB (Syd), LLM, SJD (Penn); Reader in Law, Australian National University.
299
300 Federal
Law
Review
[VOLUME
13
market. The product market has been dealt with in an earlier issue of this
joumai.l The functional level seldom presents problems of definition and
is
often subsumed in the analysis of the product market. The geographic
dimension is just
as
important
as
the product aspect but, unaccountably, it
has not received the same attention in the cases or commentaries, although
there are signs in other jurisdictions of increasing interest in it.
This article will concern itself with the geographic element.
It
will seek
to draw together the Australian and relevant overseas case-law and literature
with a view to identifying the most suitable tests and approaches for
delineating the geographic market. At the same time, it will examine the
decisions of the Federal Court of Australia, the Trade Practices Tribunal
and the Trade Practices Commission in order to see whether the tools of
market analysis actually being used in Australia are the best available from
the viewpoint of accuracy and legal certainty.
A General Considerations
To an economist, a market
is
essentially the arena for the interplay of
primary demand and supply forces. This conception corresponds largely
with its legal meaning today. But when the market concept made its first
appearance in a legal setting, in Standard Oil Co
of
New Jersey v United
States,2 its content was much less certain and it was referred to virtually in
passing. In the Standard Oil case itself this was no doubt because, on any
view, the monopoly power of the old Standard Oil trust was obvious and
inescapable.
For
some time after Standard Oil, the monopolisation cases brought
before the courts involved defendants whose market dominance was no
less obvious than Standard Oil's. Consequently, the relevant market notion
developed only slowly.
It
was not until the mere possession of monopoly
power
was
found to constitute a prima facie breach of section 2 of the
Sherman Act in the Alcoa case in 1945 that it became necessary for the
courts to perform an economic analysis of the defendant's market power.3
Professors Areeda and Turner in their widely-used treatise on antitrust
law state that the dimensions of the geographic market
tum
on the "ability
of firms to sell beyond their immediate locations".4 But this statement, while
true as far
as
it
goes, is potentially misleading, for it tends to emphasise
the supply side of the observed transactions at the expense of the demand
side. Since the market
is
the arena for the interplay of primary supply and
demand forces, emphasizing one side at the expense of the other can, and
not infrequently does, lead to error. Thus, although the supply of rare
books might be concentrated in Sydney and Melbourne, the relevant market
would not be confined to those two cities because the demand is probably
nation-wide. The buyers could be resident anywhere in the continent and
their purchases could readily be forwarded to them. Conversely, the primary
1 G de Q Walker, "Product Market Definition in Competition Law" (1980)
11
FL
Rev 386 (hereinafter cited as Product
Market).
2 (1911)
221
us 1, 106.
3 (1945) 148 F 2d 416; W Upshaw, "The Relevant Market in Merger Decisions:
Antitrust Concept
or
Antitrust Device?", (1966) 60 Nw
UL
Rev 424, 428-434.
4 P Areeda and D Turner, Antitrust
Law
(Boston 1978), Vol 2, 355. One
of
the
authors refers
to
this work as "the Bible": D Turner ''The Role
of
the 'Market
Concept' in Antitrust Law" (1980) 49 Antitrust LJ 1145,' 1147.

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