Predatory pricing is one way in which a business may misuse its market power. Predatory pricing occurs when a company with substantial market power or share of a market sets is prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market. This conduct is illegal.
Predatory pricing is one way in which a business may misuse its market power.
Predatory pricing occurs when a company with substantial market power or share of a market sets its prices at a sufficiently low level with the purpose of:
- eliminating or substantially damaging a competitor
- preventing the entry of a competitor into that or any other market
- deterring or preventing a competitor from engaging in competitive conduct.
This leaves the company with less competition so it can disregard market forces, raise prices and exploit consumers.
Predatory pricing can be considered under the general prohibition on misuse of market power s.46(1) or under the specific provision dealing with predatory pricing s.46(1AA)
Section 46 prohibits businesses with 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 the market.
A business has a 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 regards 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 not act with an anti-competitive purpose.
Price cutting, or underselling competitors, is not necessarily predatory pricing and in many cases lowering prices is pro-competitive. It is the presence of sustained very low pricing and an anti-competitive purpose that turns price cutting by a business with substantial market power or market share into predatory pricing.
Proving that a business is involved in predatory pricing can be difficult because:
- the initial signs of predatory pricing can appear pro-competitive
- there is often no clear evidence of an anti-competitive purpose that the ACCC can use to uphold an allegation.
Nevertheless, the ACCC takes alleged predatory pricing seriously and encourages concerned businesses to contact it.
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