ACCC v Eurong Beach Resort Ltd (2006) ATPR 42-098, FCA 1900. In Eurong Beach Resort, the Respondent admitted that it had misused its market power in the supply of passenger and vehicle ferry services to drive out a competitor, offering prices lower than the cost of wages and fuel. Corporations are surely entitled to possess market power…”. 201, 212): “The Full Federal Court applied the wrong competitive test in determining whether there was a breach of s46” and “Our criticism with the decision in Boral likes not so much in the result, but in the unqualified application of a test of what the entity would do in a perfectly competitive environment. 180) that the Full Court’s “conclusion that recoupment is not required is … fundamentally flawed.” He also criticizes the Full Court for not separating out the assessment of market power from the taking advantage element. 177–182), who strongly favors recoupment and states (p. 108, 111): “The Boral decision might be seen as an example of what can go awry when purpose is allowed to swamp the other elements of s 46” and “If the Full Court’s judgment is correct, s 46 may prove to be an instrument for the suppression of competitive pricing conduct in many Australian markets”. 212) suggest the Full Court’s decision lacks clarity and guidance as to what large firms can do to protect market share when entry occurs or is threatened, without breaching s.46. Many besides Pleatsikas were critical of the Full Court decision. Indeed, at the heart of Boral was whether Australia should adopt the “recoupment test” as a supplement to the A–T cost test when price is below average variable cost. When courts refer to the A–T test, they almost inevitably are referring to their price–cost test. But our differences on this historical issue are not critical. Indeed, we think their view would have been that, when a rational profit-maximizing firm prices below average variable cost in the short-run, that tells us that recoupment is likely. While we agree that A–T recognized that, as an economics matter, successful predation would require recoupment, we disagree that it was envisioned that, as a part of the test, the plaintiff would have to demonstrate the likelihood of recoupment. Herbert Hovenkamp, in one of the papers prepared for this conference, has argued that A–T envisioned the need for the plaintiff also to show a reasonable likelihood of the monopolist’s recouping any short-run losses (a complementary test) as eventually implemented by the Supreme Court in the Brooke case. This is the conventional understanding of their proposal. (b) A price below reasonably anticipated average variable cost should be conclusively presumed unlawful (Areeda and Turner 1975, p. (a) A price at or above reasonably anticipated average variable cost should be conclusively presumed lawful. When we refer to the Areeda and Turner “test” (A–T) we mean essentially their twin proposition that: This paper will describe the Boral case, discuss how the Australian courts, including the High Court, attempted to apply the A–T test to the facts of the case, and survey and comment on the ongoing legislative turmoil that followed from High Court’s decision. Boral led immediately to some radical changes in the TPA but, even today, more than 10 years after Boral, Australians are still struggling to develop the right statutory framework to deal with predatory pricing. Equally important, the case raised some fundamental questions about whether there was a serious “gap” in the Australian equivalent of Section 2 of the Sherman Act-Section 46 of the Competition and Consumer Act 2010, formerly the Trade Practices Act 1974 (TPA)-which made it difficult to challenge predatory conduct. That case, the Boral case, decided by the High Court in 2003, raised a number of interesting issues with regard to whether and how the test that was proposed by Areeda and Turner should be employed to deal with price cuts by large firms that are aimed at competitors. In the only predatory pricing case in Australia to reach the High Court, the ideas and recommendations contained in the 1975 Harvard Law Review article by Phillip Areeda and Donald Turner were at the heart of the case.
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