Jan

22

Goodbye to substantial markets?

January 22, 2010 | 2 Comments | Stephen King

John Durie, in the Australian, speculates about changes to Australia’s merger laws. At present a merger or acquisition is illegal if it leads to a substantial lessening of competition in a substantial market. The only concrete change that Durie flags relates to ‘substantial’ markets:

The government will attempt to stop this by changing section 50 of the law by removing the word “substantial” from the “substantial market” test — so now takeovers will be stopped if they amount to a substantial lessening in competition in a market.

The word ‘substantial’ to describe ‘market’ was added to the mergers test to avoid the law covering ‘trivial’ mergers. However, its inclusion simply reflected a lack of understanding of market definition in an antitrust context.

Markets are based on substitution. If properly defined, an economic market for merger analysis captures the relevant level of competition. A market might be nationwide or even international. Or it may simply cover a single town or even part of a town – such as Karabar in Queanbeyan in NSW. The key issues are – what is the nature of competition and what will the merger or acquisition do to this competition. If the merger substantially lessens competition in a properly defined economic market then it will harm consumers and the economy. The merger should be opposed. Requiring that the market is also ‘substantial’ is redundant. So if Durie’s speculation is correct, the government will be getting rid of a redundant but confusing adjective!


Comments

2 Responses to “Goodbye to substantial markets?”

  1. No need for ’substantial’ markets for mergers? « Competition Law on January 22nd, 2010 11:15 am

    [...] It is tough to see how it will do this.  Former chair of the ACCC’s Merger Review Committee, Prof Stephen King has made this observation in relation to the proposed change: Markets are based on substitution. If properly defined, an [...]

  2. Creeping Acquisition Amendments Revisited « Competition Law on February 4th, 2010 2:08 pm

    [...] I’ve previously referred to comments by former chair of the ACCC’s Merger Review Committee, Prof Stephen King has made this observation in this respect: Markets are based on substitution. If properly defined, an economic market for [...]