Predatory pricing (s46(1) and s46(1AA))

What is predatory pricing?

The ACCC is often asked to investigate claims of predatory pricing and to explain what it is to members of the business community.

Predatory pricing occurs when a company sets its prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market.

This leaves the company with less competition so it can disregard market forces, raise prices and exploit consumers.

Price cutting, or underselling competitors, is not necessarily predatory pricing. Also, larger businesses that are able to legitimately use their size to reduce their costs and the prices at which they sell their products to consumers are acting in a pro-competitive way.

However, exploiting market power to eliminate or damage competitors is anti-competitive and a misuse of that market power.

When does predatory pricing occur?

Predatory pricing is unlawful under s. 46(1) and s. 46(1AA) of the Competition and Consumer Act 2010.

Section 46(1) prohibits businesses that have substantial market power from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market or deterring or preventing a person from engaging in competitive conduct in a market.

A business has substantial market power when its activities are not significantly constrained by competitors, suppliers or customers.

Section 46(1AA) applies to business conduct occurring on or after 25 September 2007. It prohibits businesses with a substantial share of a market, having regard to the number and size of its competitors in the market, from selling goods or services for a sustained period at a price below their relevant cost of supply. As with s. 46(1), a business must act with an anti-competitive purpose.

It is the presence of a clear anti-competitive purpose that may turn price cutting by a company with substantial market power or market share into predatory pricing. Once competitors are damaged or eliminated, the likely results are that the company can raise its prices and exploit consumers.

Why is predatory pricing so difficult to prove?

The initial signs of predatory pricing are pro-competitive and there is often no written evidence of anti-competitive purpose with which an allegation could be upheld.

The ACCC takes alleged predatory pricing seriously and encourages concerned businesses to contact it.

Want more information?

Please contact the ACCC Small business helpline on 1300 302 021, the small business complaints form or directly through one of our offices.