Australia: Australian Competition Regulator Comments On New Predatory Pricing Prohibition: Trade Practices Act 1974 (s 461AA)

Last Updated: 19 February 2008
Article by Graham Maher


With effect from 25 September 2007 the Australian Trade Practices Act was amended, among other matters, to include, in the context of the prohibition on misuse of market power, a specific provision prohibiting predatory pricing. The expressed purpose of the new provision is to "specifically target(ing) anticompetitive below-cost pricing by corporations with a substantial market share"1

The new predatory pricing provision prohibits a corporation possessing "substantial market share" from discounting below its "relevant cost" for a sustained period" for the purpose, among others, of eliminating or substantially damaging a competitor.

Recently, in the context of its Report into the price of unleaded petrol in Australia2 the Australian Competition and Consumer Commission discussed the new provision and proffered some preliminary guidance as to its likely interpretation.

General Comments

The ACCC noted that the new provision differed from the general provision prohibiting misuse of market power (which remains in force and may still apply to predatory pricing conduct) in two fundamental ways. First, the general provision requires that the corporation in question possess substantial market power, while the new provision merely requires the demonstration of a substantial market share. Secondly, there is no requirement in the new provision that the corporation "take advantage" of its market power or substantial market share.3 The ACCC commented that the key challenge in implementing the new provision was to capture anticompetitive pricing behaviour without reducing the incentives for legitimate competitive pricing.4 With this objective in mind, the ACCC expressed the view that in interpreting the new provision Australian courts were likely to pay particular attention to the requirement to establish a proscribed anti-competitive purpose which was the only requirement present in the new provision, absent the requirement to establish market power and a taking advantage of that power, limiting what would otherwise be a prohibition of "strict liability".5

Specific Elements

Substantial Market Share

The ACCC cautions against adopting a simple calculation of the percentage of units sold or value of those units as demonstrating that a firm’s market share is "substantial" in any given market. It notes that the term "substantial" has been interpreted by Australian courts as signifying "large or weighty" and that the new provision states that courts may have regard to the number and size of the firm’s competitors in the relevant market in determining this issue. The ACCC suggests that other factors which may be relevant in determining whether a firm’s market share is substantial include:

  • "the capacity of the firm;
  • the degree of product determination in the market;
  • the degree of brand loyalty;
  • the presence and size of sunk costs; and
  • the presence and size of economies of scale"

In a traditional analysis of market power one would define the relevant market by reference to demand and (in Australia) supply side substitutability in response to an SSNIP,7 calculate market shares (which Australian courts have recognised provide evidence of market power but do not necessarily mean that a substantial degree of market power is present8) and then consider potential constraints on the behaviour of the firm in question, including barriers to entry and other structural features of the relevant market. While economies of scale and the presence of sunk costs may each be a sine qua non in establishing market power, query whether the same can be said for the establishment of market share. Further, it is arguable that the capacity of a firm (at least insofar as it is not employed and if employed would be cost efficient) is more relevant to an assessment of a firm’s future competitive behaviour as opposed to determining whether it possesses a substantial market share at the time of engaging in the impugned behaviour.

While the Australian Parliament, in requiring only a substantial market share as opposed to substantial market power, clearly intended to provide for a lower threshold for establishing a potential predatory pricing breach, the list of factors suggested by the ACCC as being relevant to establish substantial market share suggest there is likely to be some overlap between the two concepts. Indeed, it raises the question as to whether a market share may only be "substantial" in the context of the new provision where other conditions in the market clearly demonstrate that such market share equates to substantial market power.

Sustained Period

Not surprisingly, in the ACCC’s view what constitutes pricing below cost for a sustained period will vary depending on the circumstances of each particular case with the duration, frequency and timing of price discounting being important considerations, as well as the breadth of the products priced below cost and the relative size of the customer group offered the product below cost. As an illustration, the ACCC contrasts the position of a retailer offering weekend price specials on perishable goods with an established retailer facing the threat of new entry offering consistent discounts below its relevant cost for a continuous period of six months; the former circumstances indicating legitimate competitive conduct, while the latter raising suspicions of predatory pricing.9

Relevant Cost

A part of the suite of amendments to the general provisions on misuse of market power, introduced at the same time as the new specific prohibition on predatory pricing, was a provision providing that a court may consider pricing below "relevant cost" for a proscribed purpose in determining whether a misuse of market power had occurred. The relevant Explanatory Memorandum10 notes the alternative options of providing for pricing below average variable cost or leaving it to the courts to determine the appropriate measure of costs in any given circumstance. The latter option is preferred on the basis that, as a decision of the High Court of Australia had demonstrated,11 there may be legitimate competitive reasons for a firm to price below its average variable cost; for example, where such pricing contributed to the profitability of a group of companies as a whole, or avoided the transaction costs associated with exiting a market. "Thus, a corporation that persistently priced under a simple measure of variable costs may not be engaging in commercially irrational conduct".12 The option of leaving it to Australian courts to determine the appropriate measure of costs in any given situation was therefore preferred in order to avoid wrongly penalising firms.13 It is anticipated that these statements will be relied on by Australian courts in interpreting similar terms in the new predatory pricing provisions.

The ACCC notes that economists have advocated a range of cost measures in determining below cost pricing and that there are no general rules as to the measurement of relevant costs. It acknowledges that there may be circumstances where pricing below any cost standard is legitimate competitive behaviour.14

Other than to say that a firm selling above its appropriately measured total costs will not breach the new provision, the ACCC states that what constitutes relevant costs will depend upon all the given circumstances, which will include the duration of the pricing conduct, whether the discounted prices were offered to all or some only customers and whether the firm was selling complementary products15 (the latter suggesting that "loss leaders" or "traffic generators" may not give rise to predatory pricing concerns).


The ACCC notes that an earlier draft of the bill which introduced the new predatory pricing provision specifically provided that it was not necessary for a court to find that recoupment of profits foregone in predatory pricing activity, consequent upon the exit of, or exclusion of competitive activity by, competitive firms, was likely in order to establish a breach of the provision.16 A statement to this effect is however to be found in the amendment to the Explanatory Memorandum.17 The ACCC suggests that the absence of such a provision within the legislation itself may reflect a desire by the Australian Parliament to provide courts with as much flexibility as possible to determine, in any given case, the relevance of the existence or absence of recoupment.18 It is considered that this reasoning is sound.


As the ACCC recognises, ultimately issues of interpretation of the new predatory pricing provisions will be for the Australian courts to determine. While the ACCC’s comments are welcome both in indicating its attitude to any prosecution for an alleged breach of the new provision and in suggesting ways in which Australian courts may interpret that provision, firms carrying on business in Australia still face significant uncertainties which may impact negatively on their legitimate competitive pricing behaviour.

The new Australian Government has yet to indicate whether or not it will seek to repeal the new predatory pricing provision but has given public indications of proposed further amendments to the general misuse of market power provisions with a view to clarifying the relevance of recoupment and the circumstances in which a firm may be said to "take advantage" of its market power. While these proposals have not yet reached the stage of a draft Bill, further developments are likely in the near future.


  1. Trade Practices Amendment Bill (No 1) 2007, Supplementary Explanatory Memorandum, p1
  2. Petrol prices and Australian consumers: Report of the ACCC inquiry into the price of unleaded petrol, December 2007
  3. ACCC Report, p233
  4. ACCC Report, p232
  5. ACCC Report, p236
  6. ACCC Report, p234
  7. Small but significant increase in price
  8. Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Limited (1989) 167 177[19]
  9. ACCC Report, p234
  10. Trade Practices Amendment Bill (No. 1) 2007, Explanatory Memorandum, pp11-12
  11. Boral Besser Masonry Ltd v ACCC [2003] HCA 5
  12. Explanatory Memorandum, p12
  13. ibid
  14. ACCC Report, p235
  15. ACCC Report, p236
  16. ACCC Report, p236
  17. Trade Practices Amending Bill (No. 1) 2007, Supplementary Explanatory Memorandum p6
  18. ACCC report, p236

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