Australia: Excessive pricing: Will antitrust authorities intervene?

It is an oddity of antitrust and competition law that – although one of the main benefits of competition, and of competition laws, is supposedly to keep prices down – in reality competition law is very rarely deployed to combat excessive pricing by businesses with monopolistic or dominant market positions. Just recently, however, in 2013, there have been two significant cases of interventions against excessive pricing – by competition authorities in China and in South Africa.


Competition is supposed to benefit consumers by keeping prices down – that is, as low as possible consistent with a reasonable rate of return for the businesses supplying the goods or services concerned. Although it is clearly in the interests of any business to make as much money as possible, and although this might be thought to involve the business charging its customers as much as possible, the fact that the business faces competition acts as a constraint on overcharging its customers. Where there are effective competitors, the business dares not keep its prices too high, because it fears it would then lose customers to its competitors, which could reduce its profits. It is this "competitive constraint" – the fear of losing customers to competitors – that keeps prices down where there is effective competition.

Antitrust and competition laws intervene where the competitive constraint is weakened. This will arise where competitors collude with each other, rather than competing with full vigour – at which point antitrust prohibitions on agreements restrictive of competition "bite". Similarly, where there is a merger of businesses that had previously been significant competitors of each other (e.g., by way of M&A transactions or joint ventures), antitrust authorities will apply merger control law to examine whether there is a significant reduction in competition that would weaken the competitive constraint. The point is that where competitors enter into an agreement or a merger that restricts competition, the competitive constraint is weakened, the businesses concerned are therefore no longer so worried about losing customers to competitors if they raise their prices, and accordingly there is a concern that prices will go up (to the detriment of consumers).

In addition, even without an agreement or merger between competitors, antitrust laws will intervene in a third situation where the competitive constraint is weakened. This is where the business concerned has a monopoly or dominant position in a market, often also called "market power" – i.e., the business is so strong in the market that, when it sets its commercial strategy (including pricing decisions), it is not constrained by the fear of losing customers to its competitors. The weakness of the competitive constraint removes or lessens the deterrent to putting prices up too high (i.e. higher than is consistent with a reasonable rate of return), and that is detrimental to consumers.

To combat this, antitrust laws around the world have rules to control businesses with monopolistic or dominant market positions – for example, in the United States, Section 2 of the Sherman Act controlling "monopolisation", in Australia the prohibition on abuse of market power, and in the European Union and its member countries the Article 102 prohibition on abuse of a dominant position.

Strangely, however, there is a reluctance to deploy these antitrust laws against abuse of dominance or monopoly or market power to intervene where the business possessing the monopoly or market power or dominance (and therefore not subject to the competitive constraint that would deter it from raising prices) actually does abuse that power to raise prices. In other words, antitrust authorities rarely intervene against excessive pricing. The US and Australian prohibitions on conduct by businesses with monopolistic or market power tend to focus more on "exclusionary" conduct (i.e., using market power to reduce competition still further) than on exploitation of market power to impose high prices.

In the EU (and in the national competition laws of EU member countries, which typically reflect EU competition law), there is no doubt that the prohibition on abuse of a dominant position can in principle be invoked to combat excessive pricing. Article 102 of the Treaty on the Functioning of the EU, which sets out the prohibition, specifically states that the prohibition covers "directly or indirectly imposing unfair... selling prices". Indeed, the EU's Court of Justice explicitly confirmed, in the 1976 United Brands case, that a business having a dominant market position abuses that position where it is

"charging a price which is excessive because it has no reasonable relation to the economic value of the products supplied".1

In practice, cases where the EU prohibition on abuse of a dominant position has actually been deployed to combat excessive pricing are few and far between. It should be noted, however, that direct intervention against excessive pricing does often occur in the context of the special regulatory regimes that apply to utility services – such as gas, electricity, water and telecoms – which are often natural monopolies or quasi-monopolies, and which are subject to price caps and price controls imposed by sector regulators. This is less a matter of antitrust and competition law, and more a matter of direct State controls of pricing.

So we have a paradox. On the one hand, competition is considered beneficial largely because the resultant fear of losing customers to competitors has the effect of deterring excessive pricing. At the same time, antitrust and competition laws (against anti-competitive agreements, abuse of monopolistic or dominant market positions, and anti-competitive mergers) are designed in large part to protect consumers from a weakening of competition that would result in excessive pricing. On the other hand, businesses having market power operate with less fear of losing customers to their competitors, but antitrust and competition laws are reluctant to intervene to combat excessive pricing.

Why is this?

In practice – what constitutes an excessive price?

A large part of the answer lies in the difficulty of determining what constitutes an excessive price.

Case law on excessive pricing by dominant undertakings – particularly where, as in the EU and its member countries, the prohibition on abuse of a dominant position is (at least in principle) designed to cover excessive pricing – suggests that there are broadly three classes of evidence that a price charged by a dominant business is "excessive" and hence unlawful:

  • first, where the price of the product very significantly exceeds the cost of producing it (this applies to services as well as goods);
  • second, where the profit margin on sales of the product is exceptionally high; and
  • third, where the price is significantly higher than the price for comparable products ("benchmarks") either in the same country or in other countries.

The practical problems of determining excessive pricing

Each of the above classes of evidence of excessive pricing has its difficulties – and these difficulties have often inhibited the application of antitrust and competition law to excessive pricing.

First, it is difficult to establish whether price vastly outstrips production costs, in large part because it is difficult to measure production costs. For example:

  • If the costs were incurred a considerable time before the product is sold (e.g., in the case of investment in plant and machinery, or in the purchase of raw materials that take a long time to convert into the finished product), it is hard to know whether the relevant cost is the historic cost (i.e. the cost actually incurred at the time) or the cost that would be incurred for the same inputs at current prices.
  • Where a business produces a range of different products, it is often hard to determine how to apportion "common" costs that are relevant to all products (e.g., the cost of its premises, machinery, and so on) – and therefore hard to determine the cost of the particular product concerned.

Second, the difficulty of declaring a profit margin (or rate of return) to be excessive lies in the fact that high profits are sometimes perfectly explicable as a result of good competitive behaviour, rather than the abuse of a dominant position. For instance:

  • A higher profit margin on sales of a product might reflect increased efficiency, rather than excessive pricing – and increased efficiency is a commendable outcome in a competitive market, which antitrust authorities should not be constraining; and
  • Likewise, where innovation is a feature of the market concerned – as is typically the case in sectors such as technology, pharmaceuticals and life sciences – high profits might be necessary to finance (and to give incentives for) the research and development investment necessary to innovate. As the UK's competition authority, the Office of Fair Trading, put it in its draft guideline on assessing conduct under the prohibition on abuse of a dominant position:
"Prices and profits may be high in markets where there is innovation. Successful innovation may allow a firm to earn profits significantly higher than those of its competitors. However, a high return in one period could provide a fair return on the investment in an earlier period required to bring about innovation. These costs include investment in research and development and should take into account the risk at the time of the investment that the innovation might have failed. ... In particular, competition law should not undermine appropriate incentives for undertakings to innovate."2

It would be perverse if antitrust law were deployed to inhibit innovation, which is one of the outcomes that competition is supposed to promote. Indeed, in the UK, similar concerns have arisen in the context of recent increases in consumer prices for gas and electricity, where the opposition Labour Party has proposed a "freeze" on these prices, but critics have warned that such a freeze could inhibit investment in security of supply of energy.

Third, there are real problems in determining that a price is excessive by comparison with "benchmarks" in the same country or internationally.

  • Within a country, an obvious problem is that, because the business concerned has a monopoly or dominant market position, there are few if any competitors in the same country to compare it with.
  • Internationally, the difficulty is that competitive conditions in other countries are often so different as to make any benchmarking meaningless.

For all these reasons, antitrust authorities have often been reluctant to intervene against excessive pricing. But that does not mean that businesses with market power need not worry about price levels. And this point has been reinforced by two new cases – in China and in South Africa – that show that, whatever the practical difficulties, concerns about excessive pricing have not gone away.

China – Guangdong river sand

In September 2013, companies controlled by a single individual together accounting for 75 per cent of sales in the Qujiang district of Shaoguan City were fined over 500,000 Chinese yuan renimbi (about GB £55,000 or €65,000 or US $85,000) - 2 per cent of their annual turnover – for excessive pricing in the sale of river sand, on the grounds that this was an abuse of dominance in violation of Article 17 of China's Antimonopoly Law and Article 11 of China's Regulation prohibiting Monopolistic Pricing.3

There was no doubt that the relevant companies had a dominant position; because of the high cost of transporting river sand, the market was local, and a 75 per cent market share is clearly a dominant position.

As for the excessive pricing, the authority relied on the fact that the prices (or, at least, the price increase) was vastly disproportionate to the production cost (or, rather the production cost increase). The companies had faced a production cost increase of 20 per cent – but implemented pricing increases of about 50 per cent.

By way of remedy, the companies were ordered to sell all the river sand that they had hoarded within six months of the decision and to do so below a specified price ceiling.

South Africa – polypropylene and propylene

South Africa's Competition Tribunal is hearing a case against the chemicals producer Sasol, which is accused of excessive pricing in breach of the country's Competition Act, which includes a prohibition on the abuse of a dominant position. This is only the third case of excessive pricing that the Competition Tribunal has heard in the 14 years since its inception. South Africa's Competition Commission is asking the Tribunal to impose a fine of 10 per cent of Sasol's turnover.

The claim relates to pricing on the domestic markets for polypropylene and propylene. There are essentially two grounds for the claim of excessive pricing:

  • The profit margins involved were an average of 162 per cent a year from 2004 to 2008, which the Competition Commission described as an "astonishing average return on capital"; and
  • The price vastly outstrips comparable prices – in particular, Sasol's price for the product on domestic markets was 30 per cent higher than the prices for the products sold to international customers.

What do we learn from the two cases?

In practical terms, a number of lessons can be learned from the China and South Africa cases.

First, and most obviously, the two cases show that, in spite of the difficulties, antitrust and competition authorities are prepared to take action against excessive pricing. Businesses with market power need to bear this in mind in setting their prices.

Second both cases arose in emerging markets. It may be that, in countries where competition (and competition law) is less developed, there will be greater readiness to take direct action against excessive pricing.

Third, both cases concern the pricing of goods sold to business customers (rather than to consumers); in the Chinese case, river sand is used for major infrastructure projects while in the South African case, the chemicals concerned are used for plastics. Clearly, when the products that are excessively priced are inputs into other goods, the excessive pricing has a multiplier effect across a wider range of products, and is therefore (arguably) more damaging.


1 Case 27/76 United Brands v Commission [1978] ECR 207.
2 UK Office of Fair Trading, Assessment of conduct – draft competition law guideline for consultation, OFT 414a, April 2004, paragraphs 2.18 and 2.20.
3 Guandong Price Bureau press release of September 4, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions