It seems to me that are a number of lessons to be learnt arising out of AMH. The question arising in AMH was how much expansion would it take of out of area of sales to act as a “price constraint” so as to represent potential close competition. In that analysis, do you look at the percentage of sales itself or do you ask whether that percentage is indicative of ready expansion if 18.7% of sales out of the proposed area is not “sufficient substitution”? The approach is to ask what do these statistical facts show and has any proposition emerging from the quantitative data as to those statistical facts been tested with the industry experts? Professor Officer was really saying in his evidence that the volume of out of area sales was so significant that sales to out of area abattoirs rendered a price increase unprofitable. In other words, given those 18.7% of sales the question was how much of a deterioration in price to growers would it take before “substitution” became viable or, in the words of Queensland Co operative Milling, became strong substitution or in the language of Queensland Wire, a sufficient degree of interchangeability. Would 1% or 3% or 5% or 12% or 18% of quantitative sales be sufficient? What would cause local growers to move sales? How much scope is there for least cost expansion if local abattoirs attempt to reduce the price? The quantitative data, of course, cannot be denied but the question is what inferences arise from the quantitative data and what weight should be attached to those inferences having regard to the direct evidence of the industry participants or industry experts?
The important thing to remember, however, about the evidence of industry experts or long term industry participants is that their evidence is very likely to be the evidence of incumbency. Existing industry participants may not necessarily think about how people might react or how things might be done differently given the price signals and price incentives mentioned earlier. The evidence of incumbency may not tell you very much at all about what innovators might do and therefore you might learn nothing about the scope for potential substitution or potential close substitution.
In the following year, the proposed acquisition by Arnotts of Nabisco raised questions of contended contraventions of s 50 of the TPA: Arnotts Limited & Ors v Trade Practices Commission (1990) 24 FCR 313 (Lockhart, Wilcox and Gummow JJ). The primary judge found that there was a national biscuit industry; Arnotts was the clear leader; its business plan was to maintain its dominant market position and maintain a market share of not less than 70% of the total Australian biscuit market; and the strength of Arnott’s position in the methods of trade and distribution provided a considerable barrier to any new entrant to the biscuit industry.
The Full Court adopted Professor Brunt’s observation in “Market Definition Issues in Australian and New Zealand Trade Practices Litigation” (1990) 18 ABLR 86 at 126 that it must be constantly borne in mind that market definition is but a tool to facilitate a proper orientation for the analysis of market power and competitive processes and should be taken “only a sufficient distance” to achieve the legal decision. Professor Brunt also said that the elaborateness of the exercise should be tailored to the conduct at issue and the integers of the statutory provisions said to have been contravened: see also Liquorland  ATPR 42 123 at . In dealing with the Arnotts’ contention that product differentiation occurred between categories of biscuits which therefore fell into different product markets, the Full Court had particular regard to activity reports and internal documents of Arnotts which strongly suggested that Arnotts saw itself as being part of a biscuit industry. Similarly, biscuits formed a different product category to confectionary.
In dealing with the various market definition issues the Court said that it was important to bear in mind that substitutability involves matters of degree and applied all of the tests formulated in Queensland Wire. The Court at p 332 noted the observations of Deane J, in the context of s 4E, that the outer limits of a particular market are likely to be blurred and their definition will commonly involve assessments of the relative weight to be given to competing considerations in relation to product substitutability and the significance of competition between traders at different stages of distribution.
The Court then gave some consideration to what degree of contestability might be sufficient and said this:
The question of substitutability is not to be disposed of merely by showing that, upon some occasions, some people consume one product rather than another or that some products within a claimed market do not directly compete with some other products in that market; or do compete with some products outside that claimed market.
The Court recognised and illustrated the application of value judgments by degree, in these terms:
In the present case, emphasis is placed upon the fact that, upon some occasions, a consumer might select a non biscuit product instead of a biscuit; for example, corn crisps might be served with a savoury dip rather than dry biscuits; … But the fact that, upon some occasions, some consumers select one product rather than another does not establish that the two products are “substitutable”, so as to be within a single market. No doubt there are many people who sometimes drink tea and, at other times, coffee. But if, for example, a particular company dominated the sale of tea within Australia, it would thwart the objectives of provisions such as ss 46 and 50 of the [TPA] to deny their application because that company did not dominate the “hot beverage market”. The fact is that tea and coffee are distinct beverages, for each of which there is a distinct demand. … [a] rise in the price of tea would probably cause few consumers to abandon tea for coffee.
It is important to remember that the notion of substitutability adopted in s 4E is one which looks to the market itself, not to the habits of individual consumers.