Misuse of Substantial Market Power: What Small Businesses Need To Know Under Australian Competition Law

Running a small business in Australia is exciting - but competing with much larger players can feel daunting. If a big rival can set prices, lock up supply, or change the rules of the game overnight, you’re probably wondering what’s fair and what crosses the legal line.

Under Australia’s competition rules, the key concept is substantial market power. Having that power isn’t unlawful on its own - many companies earn it by competing well. But using that power in a way that harms competition can breach the Competition and Consumer Act 2010 (CCA).

In this guide, we’ll explain what “substantial market power” actually means, how the misuse of market power rules work, what conduct the Australian Competition and Consumer Commission (ACCC) looks at, and the practical steps you can take if you think a larger business is squeezing you out. We’ll also cover ways to protect your position with smart contracts and compliance so you can keep growing with confidence.

What Is ‘Substantial Market Power’ In Australia?

Substantial market power is a firm’s ability to behave to a significant extent independently of competitors, suppliers and customers. It’s about influence over market outcomes - for example, the ability to profitably raise prices, reduce output or set terms without losing so many customers that the strategy fails.

Key indicators a business may have substantial market power include:

• They can raise prices or reduce quality without quickly losing a large volume of customers.
• They can restrict supply or access and still maintain significant market share.
• Suppliers or customers rely on them heavily and have limited realistic alternatives.
• They can impose contract terms or commercial conditions that smaller rivals couldn’t make stick.

Importantly, a business doesn’t need to be a monopoly to have substantial market power. The assessment depends on the specific market, how easy it is for new competitors to enter, the availability of substitutes, and the bargaining power of suppliers and customers.

Having substantial market power isn’t illegal. The legal issue arises when that power is used in a way that has the purpose, effect, or likely effect of substantially lessening competition.

How Section 46 Of The CCA Works (And What It Prohibits)

Section 46 of the Competition and Consumer Act 2010 (CCA) prohibits a corporation that has substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition (often abbreviated as SLC) in any market.

A few important points about the law:

• It’s the conduct and its competitive impact that matters - not simply being large or successful.
• The test looks at “purpose, effect or likely effect”, so conduct can be unlawful even if the anti‑competitive harm is expected but hasn’t happened yet.
• Courts and the ACCC assess whether the conduct makes it harder for rivals to compete on the merits (for example, by foreclosing access to customers or inputs), not whether a particular competitor is inconvenienced.

Section 46 sits alongside (but is distinct from) other competition and consumer protections. For example, exclusive dealing has its own rules under section 47, cartel conduct is dealt with separately, and unfair contract terms are addressed by the Australian Consumer Law (ACL). These frameworks can overlap in real scenarios, but they’re different legal tests.

If your situation is complex or spans more than one area, it’s wise to get targeted competition law advice early so you understand the options and risks.

Examples: What Can Misuse Of Market Power Look Like?

Every case turns on its facts, but the ACCC commonly considers the following types of conduct. Each example becomes a problem where it has the purpose, effect or likely effect of substantially lessening competition.

• Predatory pricing: Pricing below cost for a sustained period to damage or eliminate rivals, followed by recoupment once competitive pressure is reduced. Not all low pricing is predatory - aggressive competition is encouraged - but below‑cost strategies aimed at driving rivals out can cross the line.
• Refusal to supply or margin squeeze: Refusing access to goods, services, inputs or platforms that are difficult to replicate, or setting wholesale and retail prices to squeeze a dependent rival’s margins.
• Tying and bundling: Making access to a must‑have product conditional on buying an unrelated product in a way that forecloses competitors from winning customers on the merits.
• Exclusive arrangements with foreclosure effects: Long or wide‑ranging exclusivity that significantly blocks rival access to key customers or suppliers (note: exclusivity is subject to its own legal tests; section 46 focuses on the impact on competition where substantial market power is involved).
• Discriminatory access terms: Offering access or interconnection on terms that strategically disadvantage rivals who rely on the facility or platform.

Two quick clarifications to avoid common confusion:

• Exclusive dealing (s 47) vs misuse of market power (s 46): Some exclusive arrangements may be assessed under both provisions, but they are different rules. A powerful firm’s exclusivity can amount to misuse of market power if it results in an SLC; exclusivity by a non‑dominant firm is less likely to raise s 46 concerns, though it may still be examined under s 47.
• Unfair contract terms vs competition law: Unfair contract terms under the ACL protect small businesses and consumers from certain standard form contract terms. That regime focuses on contract fairness, not market power. By contrast, s 46 is about conduct by firms with substantial market power that harms the competitive process.

If you’re unsure which regime applies, you can review general ACL prohibitions on misleading conduct under section 18 or protections against unconscionable conduct under section 21, and then consider whether your issue also engages the competition rules.

Warning Signs And Practical Risks For Small Businesses

Small businesses often feel the impact of market power in supply chains, platform ecosystems and local retail markets. While each industry is different, common warning signs include:

• Locked‑up supply or shelf space: You’re told a key supplier or retailer can’t deal with you because an incumbent has “category captain” arrangements or broad exclusivity across many outlets or regions.
• Sudden “take‑it‑or‑leave‑it” platform rule changes: A dominant marketplace, app store or delivery platform changes fees or ranking algorithms in ways that materially reduce your visibility or margins, with limited recourse.
• Below‑cost undercutting targeted at you: A much larger competitor prices sharply below cost only where you operate, then raises prices after you exit.
• Dependence on a must‑have facility: Access to essential infrastructure, data or interoperability is denied or provided on strategically unfavourable terms.
• Contractual leverage used to foreclose: You’re asked to accept unusually restrictive terms that limit your ability to work with others or expand, with no genuine commercial justification.

Not all tough behaviour is unlawful. Robust competition is good for customers. The legal line is crossed when the conduct by a firm with substantial market power has the purpose, effect or likely effect of substantially lessening competition - for example, by foreclosing rivals from efficient access to customers or inputs.

What Should You Do If You Suspect Misuse Of Market Power?

You don’t need to handle this alone. A structured approach will help you assess the issue and decide on next steps calmly and strategically.

1) Record The Facts Carefully

Collect objective evidence and keep it organised. Useful material includes:

• Emails or letters describing refusals to supply, exclusivity, or major rule changes.
• Pricing history showing sustained below‑cost pricing targeted at your area or channel.
• Contracts with restrictive clauses (and drafts showing how they evolved).
• Notes of conversations, and details of comparable terms offered to others if you know them.
• Market context: who the key players are, barriers to entry, and why alternatives are not realistic in practice.

2) Map The Conduct To The Legal Tests

Ask three questions: (a) does the firm likely have substantial market power in the relevant market? (b) what exactly is the conduct? and (c) does it have the purpose, effect or likely effect of substantially lessening competition? Be specific about how rivals are foreclosed or handicapped and why customers are worse off over time (not just in the short term).

3) Get Targeted Legal Advice Early

Competition law turns on detail and evidence, and there are often several ways to address a problem. Speaking with a lawyer can help you stress‑test the facts, weigh options (from informal engagement to complaints) and decide where to focus your energy. If your contracts also need a refresh to reduce risk while you address the issue, advisory work can run in parallel.

4) Consider Engagement Or Complaints

Depending on strategy and risk appetite, you may:

• Engage the counterparty commercially (backed by advice) to seek practical changes to terms, access, or timelines.
• Raise concerns confidentially with the ACCC, which has information‑gathering powers and can investigate potential breaches of the CCA.
• Explore court‑based remedies such as injunctions or damages where appropriate (your lawyer can assess prospects and costs).

Throughout, keep your day‑to‑day business protected with clear contracts, diversified channels where possible, and documented decision‑making. If your issue touches several regimes, you can also seek a UCT review of any standard form terms you receive or issue to ensure your position is as strong as possible.

How To Protect Your Business With Contracts And Compliance

While the legal system addresses anti‑competitive conduct, you can reduce your exposure with strong, tailored contracts and compliance processes. These won’t cure market power issues on their own, but they do put you in a better position to negotiate, escalate and keep trading.

Core Documents To Consider

• Terms of Trade: Set out pricing, payment timing, delivery, liability and termination rights clearly so you can enforce what matters most to your cash flow and operations.
• Distribution Agreement: If you sell through distributors or act as one, use a balanced agreement that addresses territory, exclusivity, performance metrics and access to data without unintentionally foreclosing your future options.
• Non‑Disclosure Agreement (NDA): Protect sensitive pricing, strategy, customer lists and product roadmaps when negotiating with larger partners or platforms.
• Shareholders Agreement: Align co‑founders and investors on decision‑making, funding, and dispute processes so competitive shocks don’t derail governance.

Depending on your model, you may also need supply agreements, service agreements, platform terms, and procurement documents. Having these tailored to your business reduces ambiguity and gives you levers to respond if conditions change.

Compliance Habits That Help

• Keep good data: Retain sales, cost and margin information, and note when competitors’ pricing seems unsustainable or targeted.
• Review standard form contracts you receive: Identify clauses that unduly restrict your ability to compete or switch. Where relevant, consider both the ACL and competition law angles.
• Sense‑check platform terms: Flag unilateral change clauses that could materially affect visibility, fees or access, and document impacts if they occur.
• Train your team: Make sure staff understand what commitments they can and can’t make (for example, exclusivity) and when to escalate.

If you’d like help assessing risk, Sprintlaw’s lawyers can provide practical competition compliance guidance alongside your contract work so you’re protected on both fronts.

What About Digital Platforms And Online Gatekeepers?

Many small businesses rely on marketplaces, app stores, search and delivery platforms to reach customers. Market power can arise in these digital ecosystems where one or two platforms control discovery, access or payments.

Common issues include ranking or algorithm changes that reduce your visibility, new fee structures that erode margins, and required bundling of services to access essential features. These changes can be lawful - but where a platform has substantial market power and the changes have the purpose, effect or likely effect of substantially lessening competition, they may raise section 46 concerns.

Practical tips:

• Document changes in traffic, conversion and fees around key platform policy updates to demonstrate impact.
• Preserve your options by diversifying channels and owning your customer relationships where possible (for example, email lists and direct sales).
• Review standard form platform terms regularly. If clauses look one‑sided, consider whether the unfair contract terms regime or competition law offers a pathway to negotiate or challenge them.

The ACCC continues to scrutinise digital markets and can act where conduct breaches the CCA. Targeted advice can help you decide whether to engage commercially, raise concerns with the regulator, or both.

Key Takeaways

• Substantial market power means a firm can act to a significant extent independently of competitors and customers; having that power isn’t unlawful by itself.
• Section 46 of the CCA prohibits conduct by firms with substantial market power that has the purpose, effect or likely effect of substantially lessening competition.
• Examples that may raise issues include predatory pricing, refusal to supply, tying, margin squeezes and exclusivity that forecloses rivals - each turns on evidence and market context.
• If you suspect misuse of market power, document the facts, map them to the legal tests, seek early advice and consider engagement or complaints to the ACCC.
• Protect your position with clear, tailored contracts like Terms of Trade, Distribution Agreements, NDAs and a Shareholders Agreement, and maintain strong compliance and record‑keeping habits.
• In digital markets, track the impact of platform rule changes and review standard form terms through both competition and ACL lenses, including sections 18 and 21 where relevant.

If you’d like a consultation about misuse of substantial market power or you want help strengthening your contracts and competition compliance, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.