Predatory pricing is unlawful under section 46(1) of the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974). This prohibits businesses that have substantial market power from using that power to eliminate or damage a competitor. It also prohibits preventing a person from entering a market, or deterring or preventing 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. Such actions would leave the company with less competition, thus able to 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 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 shown 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. Often, there is no written evidence of anti-competitive purpose to prove an allegation.

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