Misuse Of Market Power In Australia: What Small Businesses Need To Know

If you’re building a small business or startup, you already know that bigger competitors can have bigger budgets, stronger distribution networks and more leverage in negotiations.

Most of the time, that’s just the reality of competition.

But sometimes, the way a powerful business uses its position can cross a legal line. In Australia, this is commonly discussed as misuse of market power (a competition law concept that can apply whether you’re the business being harmed or the business being accused).

This guide breaks down what “misuse of market power” means in practical terms, what conduct is risky, what you can do if you’re on the receiving end, and how to keep your own growth strategy compliant as you scale.

Important: This article provides general information only and doesn’t constitute legal advice. Competition law is fact-specific, and outcomes can turn on small details (including how the relevant market is defined and the commercial context). If you’re dealing with a live issue, it’s best to get advice on your particular situation.

What Is “Misuse Of Market Power” In Australia?

In Australia, “misuse of market power” generally refers to conduct prohibited under section 46 of the Competition and Consumer Act 2010 (Cth). It’s designed to stop businesses with substantial market power from using that power in a way that harms competition.

It’s important to separate two ideas:

• Having market power isn’t illegal - many successful businesses have it.
• Using market power in a way that substantially lessens competition can be illegal - and that’s where the risk sits.

Key Elements (In Plain English)

While the legal tests can get technical, a useful practical way to think about misuse of market power is:

• Does a business have substantial market power in a market?
• Is it engaging in conduct that has the purpose, effect, or likely effect of substantially lessening competition (often shortened to “SLC”)?

In other words, it’s not just about a tough negotiation or a competitor winning business. The focus is on whether the conduct is likely to damage competition itself (for example, by preventing new entrants, eliminating rivals unfairly, or locking up supply channels so competitors can’t viably operate).

Why This Matters To Startups

Startups and small businesses often feel the impact first. If you rely on access to a platform, supplier, distributor, or key input, a powerful player’s decisions can make or break your ability to compete.

At the same time, if your startup grows quickly (or you operate in a niche with limited alternatives), you can also find yourself being scrutinised for conduct that looked “commercial” internally but appears “anti-competitive” externally.

What Does “Substantial Market Power” Actually Mean?

This is one of the most misunderstood parts of misuse of market power.

“Substantial market power” doesn’t necessarily mean a monopoly, and it doesn’t always require the biggest market share. It’s about the ability to act without being meaningfully constrained by competitors, customers, or suppliers.

In practice, factors that can point to substantial market power include:

• High barriers to entry (it’s hard for new businesses to enter and compete)
• Limited substitutes (customers don’t have realistic alternatives)
• Control over critical infrastructure (distribution, logistics, access to customers, technology, data, etc.)
• Strong brand loyalty and “must-have” status
• Ability to sustain losses longer than competitors (important in pricing strategies)

“Market” Definition Is Often The Battleground

Misuse of market power cases often hinge on how the “market” is defined.

For example, are you in:

• a broad national market (“online retail”)
• or a narrow niche (“same-day grocery delivery in inner Melbourne”)?

For small businesses, this matters because a business can look “small” in a broad market but still have substantial market power in a narrow segment where there are few substitutes.

Common Examples Of Misuse Of Market Power (And How They Show Up In Real Life)

Misuse of market power isn’t limited to one type of behaviour. The risk usually arises when a powerful business uses its leverage to make it harder for others to compete on the merits.

Below are examples that often come up in disputes, along with what they can look like for a startup or small business.

Predatory Pricing (Or “Below-Cost” Campaigns)

This is where a powerful business prices so aggressively (sometimes below cost) that smaller competitors can’t survive - with the expectation it can raise prices again after rivals exit.

What this can look like to you:

• A competitor suddenly undercuts you heavily in your key region or category.
• The discounting seems irrational (not tied to efficiencies or a genuine promotional strategy).
• It continues for long enough that it looks like a “bleed you out” strategy.

Not all discounting is unlawful. Competitive pricing is normal. The concern is where the pricing is tied to market power and a competition-harming strategy.

Refusal To Supply Or Restricting Access To Something You Rely On

If a business controls an input you need (such as a distribution channel, key product, access to a customer base, data, or a technical interface), a refusal to supply or a restriction of access can have serious competition impacts.

What this can look like:

• A supplier stops supplying you after you launch a competing product.
• A platform changes rules in a way that blocks your business model with little notice.
• You’re offered supply only on terms that are commercially unrealistic.

These scenarios are often highly fact-specific. A refusal to supply isn’t automatically unlawful, and whether it raises section 46 risk can depend on factors like the business’s market power, the competitive impact, and whether there are workable alternatives.

Margin Squeeze (Where You Can’t Compete Profitably)

A “margin squeeze” concern can arise where a powerful business operates at multiple levels of the supply chain (for example, it supplies an input and competes downstream).

What this can look like: you can buy the input, but only at a price that means you can’t compete with the same business’s downstream pricing.

Margin squeeze-style allegations can be complex in practice, and outcomes can depend on market definition, pricing evidence, and whether the overall conduct substantially lessens competition.

Bundling, Tying, Or “All-Or-Nothing” Deals

Bundling or tying can be legitimate, but it can become risky if it forecloses the market (for example, customers can’t realistically choose a smaller competitor because the dominant player makes access conditional).

What this can look like:

• Customers must buy Product A to get access to Product B.
• Loyalty rebates or incentives make it commercially impractical to use a new entrant.

Threats Or Retaliation For Competing

Sometimes the “conduct” isn’t just the contract term - it’s the behaviour around it.

What this can look like:

• “If you supply them, we’ll stop buying from you.”
• “If you list their product, we’ll remove your access.”

If you’re seeing these patterns, it’s worth getting advice early, because evidence and timing can make a big difference.

How To Protect Your Business If You Suspect Misuse Of Market Power

If you think you’re being squeezed out by a bigger player, it’s normal to feel like you have limited options.

In practice, you often have more leverage than you think - but you’ll get better outcomes if you respond strategically (and document what’s happening).

1) Get Clear On The Commercial Facts (Before The Legal Labels)

Start by mapping what’s actually happening in a simple timeline:

• What changed (price, access, supply terms, platform rules)?
• When did it change?
• Who said what (and when)?
• What’s the impact on your ability to compete?

This is useful whether you end up negotiating a commercial fix, making a complaint, or pursuing a formal dispute process.

2) Review Your Contracts (This Is Often Where Leverage Lives)

Many “power plays” are executed through contract terms: termination clauses, unilateral variation rights, exclusivity, rebate structures, minimum spend, or step-in rights.

It’s worth reviewing your:

• supplier/distributor agreement
• platform or channel terms
• customer contract (if pricing or bundling is involved)

In particular, well-drafted Terms of Trade can help you set clearer payment, supply, and dispute settings in B2B relationships, so you’re not negotiating from scratch every time something changes.

It’s also common to see risk shifted through contract drafting. If you’re negotiating liability caps, carve-outs, or “no reliance” language, it helps to understand how limitation of liability clauses operate in Australia (and what you can push back on).

3) Don’t Underestimate The Power Of A Well-Structured Legal Letter

Many disputes resolve before they escalate, especially where the bigger business is sensitive to regulatory risk. A clear letter that sets out:

• the factual background
• the commercial impact
• the legal issues (without overreaching)
• the outcome you want

can often reopen negotiations quickly.

4) Consider Whether Consumer Law Issues Are Also In Play

Misuse of market power sits in competition law, but it’s not always the only issue.

Depending on what’s happening, you might also be dealing with:

• misleading statements made during negotiations
• misleading marketing or representations to customers
• unfair contract terms (particularly in standard form arrangements)

For example, if the conduct involves inaccurate claims about pricing, exclusivity, “authorised reseller” status, or product compatibility, the Australian Consumer Law may be relevant (especially section 18’s prohibition on misleading or deceptive conduct).

It can also help to understand the building blocks of these claims, including the elements of misleading or deceptive conduct, because they often appear alongside competition issues in real disputes.

5) Know Your Escalation Options (Including The ACCC)

Depending on the facts, your options may include:

• Commercial negotiation (often the fastest and most cost-effective)
• Making a report to the ACCC (the regulator that investigates competition law issues)
• Private legal action (for example, seeking injunctions or damages)

The “right” option depends on your goals, your evidence, and your appetite for time and cost. A good early question to ask is: do we want the conduct to stop, do we want compensation, or do we want both?

What If You’re The Business Being Accused Of Misuse Of Market Power?

If your startup is scaling fast, it can feel strange to be accused of anti-competitive conduct - especially if you’re just doing what looks like smart business.

But this is where it’s worth pausing. Competition law risk often appears when:

• you become a “must-have” supplier or platform in a niche
• you control access to customers, data, logistics, or an interface others rely on
• you introduce aggressive exclusivity, bundling, or pricing strategies as you grow

Practical Steps To Reduce Risk

If someone raises concerns (or you’re designing a high-impact strategy), it helps to check:

• What is the legitimate business rationale? (efficiency, quality control, safety, fraud prevention, supply constraints, etc.)
• Is the strategy broader than needed? (could you achieve the same goal with less market impact?)
• Are you applying it consistently? (uneven enforcement can look like targeting competitors)
• Are your communications careful? Internal emails and messages can become evidence later.

If your business deals with end customers as well, it’s also worth checking your customer-facing practices and compliance settings with a consumer lawyer, because competition issues can quickly become consumer law issues if communications or advertising are unclear.

Be Careful With “Standard Terms” When You’re The Stronger Party

As you grow, you may start using standard terms across suppliers, resellers or customers.

That’s normal - but the bigger you are (and the less bargaining power the other side has), the more your terms can be scrutinised. If you’re unsure whether your go-to agreements or online terms create risk, an ACL consultation can help you check the settings before they become a problem.

How To Build A “Competition-Safe” Growth Strategy (Without Losing Momentum)

No one wants to slow down growth. The goal is to keep momentum while reducing the likelihood that a competitor, supplier, or regulator sees your strategy as damaging competition.

Use Contracts To Clarify Legitimate Controls

Many growth strategies need some form of control: minimum standards, brand protection, delivery requirements, platform integrity, or quality assurance.

The key is ensuring those controls are:

• clearly documented
• proportionate
• applied consistently

Train Your Team On “Red Flag” Language

Competition issues can be created (or made worse) by internal messages like:

• “Let’s kill them off with pricing for a few months.”
• “We’ll cut their supply if they keep competing.”
• “Lock them out so they can’t enter.”

Even if the actual conduct is defensible, those words can be damaging in a dispute. As your team grows, it’s worth building internal habits around careful commercial communications.

Keep Your Compliance Settings Scalable

When you’re early-stage, you might be making fast changes weekly. As you scale, those “quick” changes become systemic.

It’s a good idea to periodically review:

• pricing and discount policies
• channel access rules
• supplier onboarding and termination processes
• standard form contracts

This isn’t about bureaucracy - it’s about keeping you in control of risk while you grow.

Key Takeaways

• Misuse of market power is a competition law issue that can apply when a business with substantial market power engages in conduct with the purpose, effect, or likely effect of substantially lessening competition.
• Having market power isn’t illegal - the legal risk usually comes from how that power is used (for example, predatory pricing, restricting access to key inputs, or retaliation against competition).
• If you suspect misuse of market power, start by documenting the facts, reviewing relevant contracts, and considering whether consumer law issues also apply.
• If you’re scaling quickly, it’s worth checking that exclusivity, bundling, access rules, and pricing strategies have clear commercial justifications and aren’t broader than necessary.
• Clear contracts, consistent processes, and careful communications are some of the most practical ways to reduce competition law risk without slowing growth.

If you’d like a consultation about misuse of market power risk (or you’re dealing with a dispute with a larger competitor, supplier, or platform), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.