HG Alert: ACCC Cracks Down on Predatory Pricing - 19 Feb 2010

The Australian Competition and Consumer Commission looks set to ramp up its efforts when investigating allegations of predatory pricing, according to comments by ACCC Chairman Graeme Samuel at a recent Senate estimates hearing.

Under the Trade Practices Act 1974, a corporation with a substantial degree of power in a market is prohibited from taking advantage of that power in that market, or any other. Taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, 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, is forbidden. There is a wide range of conduct which can, in certain circumstances, “take advantage” of market power, including predatory pricing.

Predatory pricing is when companies with substantial market power sell products or services at very low prices, so as to eliminate or discipline competitors and reap higher profits later.

However, in a predatory pricing case in 2003, the High Court of Australia defined “market power” very narrowly, and made it difficult for the ACCC to successfully prosecute for predatory pricing. The fallout from the High Court’s ruling led to the passage of the Birdsville Amendment (so called because it was reputedly drafted in the Birdsville Hotel).

As a result of the Birdsville Amendment, a corporation may still contravene the predatory pricing provisions even if it cannot recoup the losses incurred by supplying its goods or services “below cost”. Importantly, the amendment applies to a corporation with a substantial “share” of the market. The concept of “market power” is irrelevant under the Birdsville Amendment.

Although the Birdsville Amendment was introduced in 2007, the ACCC has yet to launch a prosecution under the amendment. Perhaps stung by the criticism levelled at the ACCC for its conservative approach, Mr Samuel announced at the recent Senate estimates hearing that the ACCC would now adopt a more robust approach to investigating predatory pricing complaints brought to it.

Mr Samuel warned, however, that “a key stumbling block to bringing prosecutions remained the difficulty of proving a company had undercut a competitor’s prices over a sustained period”. This concern has the potential to get in the way of the Commission’s proposed aggressive approach to investigating predatory pricing allegations.

For more information on predatory pricing or the ACCC, please contact HopgoodGanim’s Competition and Trade Practices team.