Businesses are free to set their prices and discount their goods and services as they see fit, but they must set their prices independently of their competitors. Pricing goods below cost can be illegal in certain circumstances.
It is illegal for competing businesses to get together and agree to fix their prices (or to agree to charge certain fees). Price fixing agreements don’t need to be in writing – a verbal agreement or an informal understanding is sufficient.
Businesses can apply to the ACCC for authorisation to engage in this conduct if they consider it provides a public benefit.
It is illegal for suppliers to attempt to set a minimum price for their products or services that retailers can’t sell below (this is known as ‘resale price maintenance’). However, a supplier may withhold the supply of goods when a retailer has sold the goods at a price below cost for the purpose of attracting customers (‘loss-leader selling’).
While selling goods at a below-cost price is usually okay, it may be illegal if it is done for the purpose of eliminating or substantially damaging a competitor. This is known as predatory pricing. Whether the law has been broken will depend on a number of factors, such as how long the goods were sold below cost and how much market power the seller has.
If you’ve realised that your existing arrangements might be breaking the law, seek legal advice immediately.