(2) Monopolization
18 Paragraphs 12-37 raise the issue of abuse of market power. Sita claims damages from Queensland and Queensland Rail. This cause of action is complicated by the relevant statutory provisions. In a broad sense, reliance is placed upon s 46 of the Trade Practices Act 1974 (Cth) (the "Trade Practices Act")but in fact, the application demonstrates that Sita relies upon the provisions of the Competition Policy Reform (Queensland) Act 1996 (Qld) (the "Competition Act"), which adopts most of the provisions of the Trade Practices Act, including s 46, although the latter section is amended in a material particular.
19 Section 46 of the Trade Practices Act prohibits a corporation, having a substantial degree of power in a particular market, from the use of such power for certain purposes. Section 82 permits a claim for damages resulting from any breach thereof. Section 4 defines "corporation" to mean:-
… a body corporate that:-
(a) Is a foreign corporation;
(b) Is a trading corporation formed within the limits of Australia or is a financial corporation so formed;
(c) Is incorporated in a territory; or
(d) Is the holding company of a body corporate of a kind referred to in paragraph (a) (b) or (c) … .
20 In general, prior to 1995, the Trade Practices Act did not bind the Crown in right of the states. In 1995, s 2B was enacted, providing that, to the extent that the Crown in right of a state is carrying on business, either directly or by an authority of the state, Pt IV (which includes s 46) and related provisions of that Act (presumably including s 82) apply to it. This did not create a right of action against the Crown in right of a state for a breach of s 46 because s 46 applies only to corporations. A state is not a corporation as defined. This problem appears to have been overcome by the Competition Act, which adopts what is called the "Schedule version" of Pt IV. In particular, s 46 is amended by deleting reference to a "corporation" and inserting reference to "a person". The applies to the construction of the Competition Code adopted by the Competition Act (which includes the Schedule version of Pt IV). Pursuant to s 22, the expression "person" includes a body politic or corporate as well as an individual. The State of Queensland is presumably a body politic and therefore included in the term "person" in the Schedule version of Pt IV. The effect is that s 46, in its amended form, and substantially all of the provisions of the Trade Practices Act, in so far as they are relevant to a claim under s 46, apply to Queensland. However s 13 of the Competition Act makes it clear that such application is limited to actions taken in carrying on business, either directly or by an authority. The term "authority" is defined in s 4 of the Trade Practices Act (adopted by s 3(2) of the Competition Act) in relation to a state, to mean:-
(a) A body corporate established for a purpose of the State … by or under a law of the State …; or
(b) an incorporated company in which the State … or a body corporate referred to in paragraph (a) has a controlling interest … .
21 For present purposes, it is not disputed that Queensland Rail was carrying on a business at all relevant times. Therefore it is at least arguable that Queensland was carrying on that business through Queensland Rail.
22 The Schedule version of s 46 relevantly provides as follows:-
(1) A person (the "first person") who has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a) eliminating or substantially damaging a competitor of the first person or of a body corporate that is related to the first person in that or any other market;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
(1A) For the purposes of subsection (1):
(a) the reference in paragraph (1)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and
(b) the reference in paragraphs (1)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.
(2) If:
(a) a body corporate that is related to a person (the "first person") has, or 2 or more bodies corporate each of which is related to the one person (the "first person") together have, a substantial degree of power in a market; or
(b) a person (the "first person") and a body corporate that is, or a person (the "first person") and 2 or more bodies corporate each of which is, related to the first person, together have a substantial degree of power in a market;
the first person shall be taken for the purposes of this section to have a substantial degree of power in that market.
(3) In determining for the purposes of this section the degree of power that a person (the "first person") or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the first person or of any of those bodies corporate in that market is constrained by the conduct of:
(a) competitors, or potential competitors, of the first person or of any of those bodies corporate in that market; or
(b) persons to whom or from whom the first person or any of those bodies corporate supplies or acquires goods or services in that market.
(4) In this section:
(a) a reference to power is a reference to market power;
(b) a reference to a market is a reference to a market for goods or services; and
(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
(5) Without extending by implication the meaning of subsection (1), a person shall not be taken to contravene that subsection by reason only that the person acquires plant or equipment.
(6) This section does not prevent a person from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47 and 50, by reason that an authorization is in force or by reason of the operation of section 93.
(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a person may be taken to have taken advantage of the person's power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the person or of any other person or from other relevant circumstances.
23 I proceed upon the basis that Queensland and Queensland Rail are "related" for the purposes of subs 46(2) and that their combined market power should therefore be treated as the power of each of them for all present purposes. (See s 4A of the Trade Practices Act and s 4 of the Competition Act.)
24 It is important to note that power is market power in a market for goods or services and that a reference to power in relation to, or to conduct in a market is a reference to power or conduct as a supplier or acquirer of goods or services. The extent of a person's market power is to be measured having regard to the extent to which that person's conduct in the market is affected by competition in the market place and/or by the conduct of suppliers and/or consumers. In Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164 at 172, Sheppard J said that subs 46(3) did not mean that substantial market power for the purposes of s 46 must be derived only from factors operating in the market. The other members of the Court (Jenkinson and Drummond JJ) appear to have accepted this view, as do I for present purposes. Nevertheless, factors outside the market are only relevant to the extent that they affect power in the market because such power is the focus of s 46.
25 The first requirement in applying this section is to identify the relevant market. The applicants have identified it as that for the provision of public passenger transport services between Brisbane and the Gold Coast along the "Brisbane/Gold Coast public transport corridor". It is not clear whether this includes transport between various points, including Brisbane, the Gold Coast and places in between, or only transport between a terminus in Brisbane and one on the Gold Coast. It is alleged in pars 13 and 14 that Sita and Queensland Rail are competitors in that market. As Sita operates road transport, it is implicit in this allegation that rail and road transport are largely "substitutable". (See s 4E of the Trade Practices Act.)
26 It is now necessary to identify the power in the market allegedly held by Queensland and/or Queensland Rail. That has been particularized as follows:-
(a) Queensland Rail is able to carry on business in the market using its infrastructure, plant and equipment without commercial regard to the net commercial benefits from that use.
(b) Queensland Rail is able to charge prices for its services that are unrelated commercially to the cost of:
(i) the infrastructure plant and equipment used in providing those services;
(ii) other costs of providing those services.
(c) Queensland Rail is not subject to the constraint of providing those services at a price that will provide a commercial return, in that it is able to rely on Queensland to provide support of the kind referred to in paragraph (e);
(d) Queensland Rail is thereby able to price those services independently of the pricing of its competitors.
(e) Queensland, by reason of its position as a body funded by taxation and grants, is able to and does provide financial assistance to Queensland Rail for its conduct of the Brisbane/Gold Coast rail link, both by way of direct grants and by way of cross-subsidisation of capital and operating costs.
(f) Queensland controls the variable message signs along the highway between Brisbane and the Gold Coast which provide a facility which Queensland Rail uses to seek business from its and Sita's potential customers, that is to say, private motorists travelling between Brisbane and the Gold Coast.
(g) Queensland has power under the TOPT Act, by the Chief Executive, to impose restrictions on Sita's manner of conduct of its business including the business it conducts in competition with Queensland Rail, and power to deprive Sita of its right to carry on business by its power under section 17 as the authority administering the operator accreditation system established by that Act.
27 Notice of intention to amend to add sub-pars 9(f) and (g) was given at the hearing. Sub-paragraph 9(f) relates to advertising signs on the Pacific Highway, which Queensland controls. That appears to have little to do with power in the identified market. Sub-paragraph 9(g) seems to assume that Queensland may lawfully use the TOPT Act for the purpose of advancing the business interests of Queensland Rail at the expense of road transport competitors. There is nothing in the TOPT Act to justify that view. Further, any legitimate exercise of power under the TOPT Act would be a governmental function rather than a business function, and therefore not caught by the Competition Act. (See ss 13 and 15 of the Competition Act.) The inclusion of par 9(g) as a particular of market power is therefore misconceived.
28 The remaining particulars focus upon the fact that Queensland Rail is allegedly freed from normal commercial considerations in its operations, including fixing fares, by the availability of existing infrastructure, plant and equipment and the availability of funding from Queensland, on a non-commercial basis. The validity of these assertions may be doubted but must be assumed for present purposes. The thrust of the particulars seems to lie in sub-par (d) which provides:-
Queensland Rail is thereby able to price those services independently of the pricing of its competitors.
29 The significance of this paragraph is a little obscure. At first blush, it might be thought to be an allegation that Queensland Rail's freedom from commercial cares also relieves it from the need to take account of competing prices in fixing its fares. As the effect of competing prices is normally to keep prices down, inoculation against the effects of price competition might be seen as a classic example of the undesirable effects of monopolistic power. However it subsequently appears that Sita's complaint is of Queensland Rail's low fares, facilitated by the alleged funding arrangements. It is said that Queensland Rail is able to charge lower fares than its bus-operating competitors because of the availability of public funding and therefore, at least in theory, to attract a larger proportion of the market. It is not alleged that Queensland Rail holds any particular proportion of the market. Indeed, paragraph 39(b) suggests that at some stage, there was a fear that Queensland Rail was not doing well in attracting business and that low fares were necessary in order that it do so. In substance, Sita pleads that a competitor which has access to resources, without more, has market power. Since most, if not all business entities have some access to resources, this seems unlikely to be correct. Sita also implies that Queensland is willing to subsidize Queensland Rail to whatever extent is necessary.
30 For present purposes, I assume that access to such finance may be relevant to the assessment of the extent of market power. This assumption is really contrary to the major argument advanced by Queensland and Queensland Rail at the hearing. They submitted that in funding Queensland Rail, Queensland was performing a governmental function, not carrying on a business, and that such conduct, and the receipt of the funds by Queensland Rail were therefore unaffected by the Competition Act. There is a respectable argument to that effect, but I consider that it probably involves questions of fact and a more detailed consideration of ss 13 and 15 of the Competition Act than was undertaken by the parties. Further, I am of the opinion that there is a more fundamental question which may render that issue irrelevant. It is the adequacy of the pleading to raise a claim under s 46. After the hearing, I referred this matter to the parties, and they have submitted appropriate written arguments.
31 Given the considerations prescribed by subs 46(3) it is difficult to see how a litigant can seek to ventilate a claim under s 46 without pleading a great deal more than mere financial power. As much appears from the cases. In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1988-89) 167 CLR 177 at 187-190, Mason CJ and Wilson J considered the concepts of power and market. Their Honours said:-
The analysis of a s 46 claim necessarily begins with a description of the market in which the defendant is thought to have a substantial degree of power. In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant's market power. Defining the market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated. Accordingly, if the defendant is vertically integrated, the relevant market for determining degree of market power will be at the product level which is the source of that power: see the discussion of market power below. After identifying the appropriate product level, it is necessary to describe accurately the parameters of the market in which the defendant's product competes: too narrow a description of the market will create the appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is.
Section 4E directs that a market is to be described to include not just the defendant's product but also those which are "substitutable for, or otherwise competitive with", the defendant's product. This process of defining a market by substitution involves both including products which compete with the defendant's and excluding those which because of differentiating characteristics do not compete. In Hoffmann-La Roche v Commission ("Roche") ([1979] 1 ECR 461) the Court of Justice of the European Communities said ([1979] ECR at p 516):
The concept of the relevant market … implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned.
Conversely, in determining in United Brands v Commission ("United Brands") ([1978] 1 ECR 207) whether other fruits should be excluded from the market which bananas served, the European Court said ([1978] 1 ECR at p 227):
For the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible.
See also Re Queensland Co-operative Milling Association Ltd ((1976) 25 FLR 169 at pp 190-191) (explaining that the defining feature of a market is substitution).
After the market has been delimited, the question is whether the defendant has 'a substantial degree of power' within that market. Market power can be defined as the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product: see Fuller, 'Article 86 EEC: Economic Analysis of the Existence of a Dominant Position', European Law Reports, vol 4 (1979) 423, at p 428. Section 46(3), which was added in 1986 by the Trade Practices Revision Act, provides that in determining the degree of market power a court should consider 'the extent to which the conduct of [the defendant] in that market is constrained by the conduct of … competitors, or potential competitors …'.
The Explanatory Memorandum accompanying the Trade Practices Revision Act stated (par 46) that s 46(3) was designed to achieve an approach similar to that adopted by the European Court in determining market power for purposes of Art 86 of the EEC Treaty. The Memorandum mentioned Europemballage and Continental Can v Commission ("Continental Can") ([1973] 1 ECR 215, United Brands and Roche, the last two being cases to which we have already referred. In Continental Can the European Court recognized the necessity of considering potential competition in determining the degree of market power:
a dominant position in the market for light metal containers for canned meat and fish cannot be decisive, in so far as it is not proved that competitors in other fields of the market, for light metal containers cannot by a mere adaptation, enter this market, with sufficient strength to form a serious counter-weight.
Courts have often looked to market share to determine degree of market power: see, eg American Tobacco Co v United States ((1946) 328 US 781, at p 797, per Judge Learned Hand. But as s 46(3) and the passage from Continental Can which we just quoted suggest, a large market share does not necessarily mean that there is a substantial degree of market power. To borrow the words from Reed J's opinion for the Court in United States v Columbia Steel Co ((1948) 334 US 495, at p 528, 'the relative effect of percentage command of a market varies with the setting in which that factor is placed.'
A large market share may well be evidence of market power (see Roche), but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power: see Continental Can. There must be barriers to entry. As Professor F M Scherer has written, 'significant entry barriers are the sine qua non of monopoly and oligopoly, for … sellers have little or no enduring power over price when entry barriers are nonexistent': Scherer, Industrial Market Structure and Economic Performance, 2nd ed (1980), p 11. Barriers to entry may be legal barriers - patent rights, exclusive government licences and tariffs for example. Barriers to entry may also be a result of large 'economies of scale'. Where the economies of scale in a market are such that the minimum size for an efficient firm is very large relative to the size of the market, it may be that potential competitors will be dissuaded from entering the market by the apprehension that only one firm would survive.
32 Dawson J said at p 198-200:-
Section 46 of the Trade Practices Act 1974 (Cth) in its present form prohibits a corporation that has a substantial degree of market power in a market for goods or services from taking advantage of that market power for certain purposes. The section throws up two basic questions. The first asks what degree of market power is required. The second asks what constitutes taking advantage of market power.
Lying behind both of those questions is the concept of the market, a concept which is sometimes dealt with in a more complex manner than is necessary. A market is an area in which the exchange of goods or services between buyer and seller is negotiated. It is sometimes referred to as the sphere within which price is determined and that services to focus attention upon the way in which the market facilitates exchange by employing price as the mechanism to reconcile competing demands for resources: see Stigler and Sherwin, 'The Extent of the Market', Journal of Law and Economics, vol 28 (1985) 555, at p 555. In setting the limits of a market the emphasis has historically been placed upon what is referred to as the 'demand side', but more recently the 'supply side' has also come to be regarded as significant. The basic test involves the ascertainment of the cross-elasticities of both supply and demand, that is to say, the extent to which the supply of or demand for a product responds to a change in the price of another product. Cross-elasticities of supply and demand reveal the degree to which one product may be substituted for another, an important consideration in any definition of a market. This is reflected in s 4E of the Trade Practices Act which provides:
For the purposes of this Act, 'market' means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.' (My emphasis.)
Important as they are, elasticities and the notion of substitution provide no complete solution to the definition of a market. A question of degree is involved - at what point do different goods become closely enough linked in supply or demand to be included in the one market - which precludes any dogmatic answer: see Times-Picayune v United States ((1953) 345 US 594, at p 612). The process is an inexact one as may be illustrated by reference to the concept of a sub-market which has been employed from time to time. In Re Queensland Co-operative Milling Association Ltd ((1976) 25 FLR 169, at pp 190-191, the Trade Practices Tribunal observed:
The distinction between markets and sub-markets can be merely one of degree. Sub-markets are the more narrowly defined, typically registering some discontinuity in substitution possibilities. Where the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a sub-market is the existence of still closer and more immediate substitutes. Sub-markets may be especially useful in registering the short-run effects of change; but they may be misleading if used uncritically to assess long run competitive effects.
Too rigid an approach in defining a market is apt to lead to unrealistic results. In this case the submission was made that, Australian Wire Industries Pty Ltd ("AWI") and The Broken Hill Proprietary Co Ltd ("BHP") being treated as one, there was no market for Y-bar. But the existence or non-existence of sales of a product cannot conclude whether a market exists or not. It must be sufficient to constitute a market that there is a product for exchange, regardless of whether exchange or negotiation for exchange has actually taken place.
In truth, the need to define the relevant market arises only because the extent of market power cannot be assessed otherwise than by reference to a market. The term 'market power' is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner. See Landes and Posner, 'Market Power in Antitrust Cases', Harvard Law Review, vol 94 (1981) 937, at p 937: Sullivan, Antitrust (1977), p 30; Areeda and Turner, Antitrust Law (1978), vol II, p 322; Easterbrook, 'The Limits of Antitrust', Texas Law Review, vol 63 (1984) 1, at p 20; Fuller, 'Article 86 EEC: Economic Analysis of the Existence of a Dominant Position', European Law Reports, vol 4 (1979) 423, at p 428. But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal: see Standard Oil Co v United States ((1911) 221 US 1, at pp 55-59); United States v E I Du Pont De Nemours & Co ((1956) 351 US 337, at pp 389, 391-392; 54 AM Jur 2d, Monopolies. The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices. Thus Kaysen and Turner define market power as follows:
A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions. (Kaysen and Turner, Antritrust Policy (1959), p 75)
See also Re Queensland Co-operative Milling Association Ltd ((1976) 25 FLR, at pp 188-189). Market power is thus the advantage which flows from monopoly or near monopoly and consistently with that notion s 46(3) of the Trade Practices Act provides: … (The sub-section follows.)
33 It has been said that in this decision, Dawson J "took a broader view of market power and how to detect its presence" than did Mason CJ and Wilson J. See ATPR 5-045. I doubt whether this is strictly correct. The latter members of the Court were seeking to define market power whilst Dawson J was describing evidence of its presence. In any event, Sita's case, as pleaded, satisfies neither approach. Nothing in the pleading would lead to the conclusion that Queensland Rail could raise its prices without losing business. Thus the definition of "market power" advanced by Mason CJ and Wilson J is not met. Dawson J considered that market power must flow from monopoly or near monopoly. It is not pleaded that Queensland Rail enjoyed such a position in the market. I note that in Pioneer Concrete (Qld) Pty Ltd & Ors v Trade Practices Commission (unreported - Matter No B 34/95 - 10 March 1995) Brennan J (as his Honour then was), in argument, expressed doubt as to whether this observation by Dawson J was intended only to reflect the facts of the case in question. My own view is that his Honour was not speaking in such a limited way.
34 In Queensland Wire, the High Court apparently approved earlier observations of the Trade Practices Tribunal in Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 at 516-7 as follows:-
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 characterized by extreme product differentiation and sales promotion;
(4) the character of 'vertical relationships' with customers and with suppliers and the extent of vertical integration; and
(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 (2), 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 firm or a new plant into a market which operates as the ultimate regulator of competitive conduct.
…
It follows that 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 to the identification of rivalrous relationships between sellers. Yet we stress that market definition can be but a first step; and we agree with Mr Brennan when he said that mere specification of markets cannot be determinative by itself of some ultimate issue.
…
Before giving our reasons we should explain our understanding of the market concept, and of the relationship between 'markets' and 'sub-markets'. 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. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.
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?
The distinction between markets and sub-markets can be merely one of degree. Sub-markets are the more narrowly defined, typically registering some discontinuity in substitution possibilities. Where the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a sub-market is the existence of still closer and more immediate substitutes. Sub-markets may be especially useful in registering the short-run effects of change; but they may be misleading if used uncritically to assess long run competitive effects.
35 One other case is worthy of consideration in this context. It is the decision of the Full Court in Arnotts Limited v Trade Practices Commission (1990) 97 ALR 555. I cite the case solely for the purpose of demonstrating the detailed and considered approach necessarily taken to the identification and description of a market and the roles of the various players in it. In particular, at 580-583, the Court identified barriers to entry as possibly the only aspect of market power always arising for consideration in identifying market power. At 582-3, in the context of an analysis of the biscuit market in Australia, their Honours said:-
Some of the theoretical barriers to entry do not apply to the present case. As we see the evidence, it indicates five potential barriers to entry: the difficulties facing a competitor by reason of Arnotts' position as market (65% share) and price leader; the capital cost which would be incurred by another organization which sought to compete with Arnotts across a broad product range; the strength of brand loyalty enjoyed by Arnotts; the competitive advantages ensuing from Arnotts' economies of scale and range; and the difficulty which a competitor would face in obtaining sufficient supermarket shelf space to support an 'across the range' operation. The five matters are, of course, entwined.
Sita's case, as pleaded, would not permit such an exercise or anything remotely like it.
36 Sita relies primarily upon the decision of Cooper J at first instance in Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 50 FCR 160. I have referred previously to that matter on appeal to the Full Court and to the subsequent application for special leave in the High Court. Sita also relies on those decisions. Application was made to Cooper J to strike out aspects of the pleading in a claim pursuant to s 46. His Honour declined to strike out passages alleging economic power. It is clear, however, that the pleading did not rely upon a bare assertion of such power. It dealt also with access to raw materials, diversification, positions in similar markets, a non-competitive arrangement with another supplier in the market, and existing excess production capacity. On appeal, the Full Court upheld the decision. The High Court, on the application for special leave (supra), said:-
In the context of an application to strike out paragraphs of the statement of claim, we consider that the actual decision of the Full Court was correct.
The case may establish that financial resources are arguably relevant to a s 46 claim, but it does not establish that such resources are sufficient to found such a claim. Further, the adequacy of the statement of claim was not in issue.
37 The present statement of claim says little about factual matters of the kind considered relevant in Queensland Wire and in the other cases to which I have referred. In particular, there is no reference to barriers to entry, described as "the sine qua non of monopoly and oligopoly …". (See Queensland Wire (supra) at 189). The Full Court in Arnotts (supra) at 580, considered that barriers to entry might well be the only "inflexible rule" with respect to the factors relevant in determining whether or not "a participant enjoys a dominant position in the market". The difference between "dominant" and "substantial" is not relevant for present purposes. It is true that Sita refers to the TOPT Act, but in this context, it does not plead any power to restrict entry to the market for transport services between Brisbane and the Gold Coast. The importance of such a consideration in this case is easily demonstrated. Even accepting Sita's assertion that Queensland Rail's conduct, if continued, will eventually force it (and presumably, all other bus-operators) out of business, the benefit to Queensland Rail would be, at best, transient. As soon as it sought to increase prices to an economic level, it would again be faced with competition from bus-operators entering or re-entering the market, assuming no significant barriers to entry. In other words, Queensland Rail's alleged willingness to trade unprofitably will not create long-term dominance in the market in the absence of such barriers.
38 The real problem with the pleading is its focus on economic power to the exclusion of all other relevant market factors. This has resulted in its failing to describe the market in a way which would permit assessment of the degree of market power held by Queensland Rail. As was said in Queensland Wire (per Mason CJ and Wilson J at 187 and Dawson J at 200), the need to identify the market arises only because of the need to assess the degree of market power. Pleading the existence of a market, without more, does not raise a s 46 claim; nor does the pleading of a fact which may or may not be a basis for market power. Sub-section 46(3) clearly invites a comparison of the respective positions of competitors and potential competitors for the purpose of determining degrees of market power. That exercise cannot be performed in the absence of information about those competitors and the context in which they compete or may compete. Sita has not attempted to address these issues. For example, it has not addressed:-
(1) The question of "substitutability" - To what extent is Queensland Rail, as a rail operator, in competition with bus operators? A railway line can serve only one fixed route whilst bus operators have flexibility about the routes which can be served. To what extent are customers likely to use the train if it does not run fairly close to their preferred embarkation/disembarkation points?
(2) Capacity - Does the existing railway line have the capacity to meet the whole or a substantially increased part of the demand for public transport between Brisbane and the Gold Coast?
(3) Price - I have already pointed out that nothing is said about Queensland Rail's capacity to raise its prices without loss of custom.
(4) Market share - Nothing is said about market share. It may be that, as the cases say, large market share does not necessarily indicate great market power, but it is a relevant factor.
(5) Bars to entry - The cases make it clear that consideration of bars to entry is significant in any exercise of this kind. I have previously demonstrated its relevance in this case.
39 As I understand it, consideration of market power may require consideration of all of these factors and perhaps many others. I am not an economist and cannot offer an expert opinion in that regard. Such opinions as I have offered are based upon the common approach taken in the various cases, leading me to the conclusion that to assert market power based solely upon economic power is meaningless. There is nothing in any of the cases which would suggest that it is possible to infer from such power alone, or from that power coupled with the other allegations to which I have referred under this heading, that Queensland Rail has substantial market power in the identified market. In those circumstances, the allegation should be struck out as embarrassing.
40 The alleged acts of abuse of market power also pose problems which I will mention briefly:-
(a) It is alleged that the Minister for Transport set the fare at a particular rate by "signing a briefing note, a copy of which is contained in Schedule 2". It is not clear to me why that action should set the fare. No reference is made to any authority for such an act. However, for present purposes, I accept at face value the assertion that the Minister so acted.
(b) The question, then, is whether he was exploiting market power. As there is no allegation that he was acting on behalf of Queensland Rail, it is difficult to see how he could have been exercising its market power (assuming the existence of such power). If, on the other hand, he was acting on behalf of Queensland, then, in the absence of any allegation as to the basis for his so acting, it is impossible to know whether his conduct was in connection with a business and therefore subject to the Competition Act.
(c) Subsequent allegations as to Queensland Rail's charging low fares are meaningless in the absence of demonstrated market power.
(d) It is also alleged that Queensland has abused its market power by allowing its variable message advertising signs situated on the Gold Coast highway to be used by Queensland Rail, but not permitting Sita to use them. As I have said, those signs have nothing to do with Queensland or Queensland Rail's power in the identified market.
(e) It is alleged that Queensland Rail has been guilty of misleading advertising. This also has nothing to do with market power.
(f) It is alleged that on 2 and 4 June 1997, one Parsons, Acting Executive Director (Public Transport) in the Department of Transport, made declarations pursuant to s 42 of the TOPT Act which had the effect of preventing Sita from carrying passengers between the Gold Coast and Brisbane, including between Logan and Brisbane and Logan and the Gold Coast. Obviously, this was not conduct by Queensland Rail. The allegation appears to be another indirect attempt to introduce Queensland into the market by virtue of its capacity to control road transport under the TOPT Act. I have dealt with this matter.
(g) Sita complains of the refusal by Queensland Rail to participate in integrated ticketing services with it and to permit it to operate a connecting service out of the Helensvale railway station. Sita also complains of the choice of the Helensvale railway station, rather than the Coomera station, as the point from which to operate a connecting bus service to a nearby theme park. It may be that if appropriate market power were pleaded, these claims could be further ventilated, but that is not possible on the pleadings in their present form.
41 In the circumstances pars 12-37 should be struck out as embarrassing.