The Competition and Consumer Act 2010 (Cth) (CCA) prohibits a corporation from engaging in conduct referred to as predatory pricing.

Predatory pricing occurs where a business sets its prices at a level below cost in order to eliminate the competition. The measure by which costs are to be assessed is the subject of considerable debate.

The prohibition on predatory pricing is contained in s 46(1AA) of the CCA and is in the following terms:

“A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

• eliminating or substantially damaging a competitor to the corporation or of a body corporate that is related to the corporation in that or any other market; or

• preventing the entry of a person into that or any other market; or

• deterring or preventing a person from engaging in competitive conduct in that or any other market.”

Although the prohibition is contained in s 46 of the CCA, which is entitled “Misuse of market power”, it is not necessary for a corporation to have a substantial degree of market power before it is enlivened.

By reason of the enactment of the Competition Code by the states and territories, the prohibition on predatory pricing also applies to other forms of businesses including partnerships and sole traders.

The CCA does not define what constitutes market share nor does it specify by what measure a share of the market is to be calculated e.g. by value or volume (size). The only guidance which is offered is that the court may have regard to the number and size of the competitors of the corporation in the market: s 46(1AB), CCA.

Similarly, the CCA does not specify what constitutes a substantial market share. The word “substantial” has been held to be “imprecise and ambiguous” in its application in the CCA, and can mean “considerable or big” or “not merely nominal, ephemeral or minimal” (Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd ).

See Substantial market share.

The concept of predatory pricing is well established in US law but has received relatively little attention in Australian law. There are a number of measures which have been used to determine when a business’ pricing is predatory. They include pricing below:

• marginal cost;

• average variable costs of production; or

• the avoidable costs of production.

The statutory prohibition in s 46(1AA) provides little assistance as to the measure of cost to be applied, stating only that a corporation must have supplied or offered to supply goods or services at less than its “relevant cost” of supplying the goods or services. There is no guidance as to how to measure “relevant cost”.

See Pricing below relevant cost.

Pricing will only be predatory within the meaning of the CCA if the corporation supplies or offers to supply goods or services at less than its relevant cost, for a sustained period. The CCA does not define the period of time which constitutes a sustained period.

See Sustained period.

It is not necessary to establish that the party engaging in the conduct must have the ability or intention to recoup losses once it has succeeded in eliminating competitors from the market.

Predatory pricing which is engaged in by a corporation which has a substantial degree of market power may also breach the general prohibition on misuse of market power contained in s 46 if the predatory pricing has occurred as a result of the taking advantage of that market power for one of the proscribed purposes.

Practice Tip: Predatory pricing is notoriously difficult to establish. While the inclusion of the statutory offence of predatory pricing by corporations who have a substantial market share was aimed at reducing this difficulty, as at the date of writing it has not had that effect.