Unconscionable Conduct
Predatory Pricing
The Australian Competition and Consumer Commission (ACCC) is responsible for administering the Trade Practices Act, which is designed to promote competition and prevent unfair business practices. Great emphasis is placed on ensuring small businesses are not the targets of unconscionable conduct or misuse of market power by larger companies.
The ACCC website (www.accc.gov.au) has extensive information on trade practices and the rights and obligations of businesses.
Two useful items from the website are reproduced here:
More Information
More detail on particular parts of the Act is available from a range of booklets and guides published by the Commission.
Some of these are free, and many are available online at the Commission's Internet site or from Commission offices.
You can also contact the NSW Office of Fair Trading (www.fairtrading.nsw.gov.au).
In 1998 laws were passed to help small businesses that find themselves victims of harsh or unfair behaviour by larger parties with which they have commercial relationships. It could be a supplier or a business consumer they deal with, or it could be in relation to a franchise or retail tenancy agreement. These laws apply to business conducted after 1 July 1998.
Section 51AC of the Commonwealth Trade Practices Act makes it unlawful for persons or companies to engage in what is called "unconscionable" conduct.
While the unconscionable conduct provisions are an effective way to provide redress for unacceptable harsh commercial conduct, prevention is always better than cure. It is far easier to stop a problem from getting out of hand in the first place than to try to remedy the damage afterwards. Small businesses can reduce the possibility of being a target of unconscionable conduct by, for example:
Above all, remember that the unconscionable conduct provisions are not intended to solve all small business problems, and will not apply to situations where one party has simply made a poor deal. You should always exercise a high level of care when making important financial or business decisions.
The following checklist can assist you in assessing your situation with regard to the provisions on Section 51AC of the Trade Practices Act.
Checklist
Question 1 must be answered "yes" to establish that the Act may apply to the conduct/parties in question.
1. Did the conduct occur after 1 July 1998?
Questions 2-4 must be answered "yes" for the conduct to be covered.
2. Did the transaction involve goods or services priced under $1 million? 3. Was the conduct aimed at a private company or person (as distinct from a public company)? 4. Were the circumstances of the alleged conduct reasonably foreseeable?
2. Did the transaction involve goods or services priced under $1 million?
3. Was the conduct aimed at a private company or person (as distinct from a public company)?
4. Were the circumstances of the alleged conduct reasonably foreseeable?
Questions 5-13, which cover the discretionary criteria specifically listed to guide the court, will help determine whether particular conduct may be unconscionable under s. 51AC(3) or (4).
If the answer is "yes" to one or more of the following questions, then the risk of unconscionable conduct is increased.
5. Does the size or strength of the company put it in a substantially stronger bargaining position than your small business? 6. Is your small business, as a result of the company's conduct, required to comply with conditions that are not reasonably necessary to protect the legitimate commercial interests of the company? 7. Was undue influence, pressure, or unfair tactics used against your small business or representative? If so, was such conduct engaged in by a company or Person acting on behalf of the stronger party? 8. Was the amount paid and/or the terms for the goods and services higher, or were the circumstances under which they could be acquired, more onerous than generally apply elsewhere?
5. Does the size or strength of the company put it in a substantially stronger bargaining position than your small business?
6. Is your small business, as a result of the company's conduct, required to comply with conditions that are not reasonably necessary to protect the legitimate commercial interests of the company?
7. Was undue influence, pressure, or unfair tactics used against your small business or representative? If so, was such conduct engaged in by a company or Person acting on behalf of the stronger party?
8. Was the amount paid and/or the terms for the goods and services higher, or were the circumstances under which they could be acquired, more onerous than generally apply elsewhere?
If the answer is "no" to one or more of the following questions the risk of unconscionable conduct is increased.
9. Were you able to understand the documents used? 10. If you were not able to understand the documents, were you advised by the larger company to seek independent advice? 11. Has the larger party demonstrated compliance with an industry code? 12. Has the larger party disclosed all terms that could affect your commercial viability? 13. Were you given any opportunity to negotiate the terms and conditions of the contract?
9. Were you able to understand the documents used?
10. If you were not able to understand the documents, were you advised by the larger company to seek independent advice?
11. Has the larger party demonstrated compliance with an industry code?
12. Has the larger party disclosed all terms that could affect your commercial viability?
13. Were you given any opportunity to negotiate the terms and conditions of the contract?
If you believe you have case for action against another business under Section 51AC of the Trade Practices Act, contact the Australian Competition and Consumer Australian Competition and Consumer Commission.
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Predatory pricing is unlawful under s. 46(1) of the Trade Practices Act, which prohibits businesses that have substantial market power from taking advantage of that power to eliminate or substantially damage a competitor, prevent the entry of a person into a market, or deter or prevent a person from engaging in competitive conduct in a market. Predatory pricing occurs when a company sets an unrealistically low price for the purpose of forcing a competitor to withdraw from the market. This leaves the company with less competition, which means it can disregard market forces, raise prices and exploit consumers. Price cutting or underselling competitors is not necessarily predatory pricing, but when such techniques are used by a business with substantial market power for the purpose of getting rid of competitors, it is considered to be a misuse of that market power.
When Does Predatory Pricing Occur?
Predatory pricing can only happen when the price setter has a substantial degree of market power. A business has substantial power when its activities are not significantly constrained by competitors, suppliers or customers. The intention of the price cutting must be to eliminate or substantially damage a competitor, prevent the entry of a person into the market or deter or prevent a person from engaging in competitive conduct in a market. It is this clear purpose that turns price cutting by a company with substantial market power into predatory pricing. Once competitors are eliminated the likely results are that the company can raise its prices, recoup its losses, and exploit consumers.
Why Is It So Difficult to Prove?
The initial signs of predatory pricing are pro-competitive and there is often no written evidence of purpose with which an allegation could be upheld. The ACCC takes alleged predatory pricing seriously and encourages concerned businesses to contact it.