Australia: A Double-Edged Sword For Below Cost Pricing – Amendments To The Misuse Of Market Power Provisions Of The Trade Practices Act

Last Updated: 15 April 2009

Article by Nick McHugh and Belinda Harvey

New amendments to section 46 of the Trade Practices Act 1974 (Cth) (TPA) have been implemented (again), but the form of the revised section has swerved from the track previously proposed.

The recoupment of costs requirement has been included, as have provisions that a court may have regard to when assessing whether a corporation has taken advantage of a "substantial degree of market power". Notably, the two track process in section 46 resulting from the Birdsville Amendments remains. The result is an even more complex regulatory framework.

Deacons reported in its June Competition & Consumer Law Update1 on the then proposed changes to the misuse of market power provisions in the TPA. In that article, it was noted that the Government sought to remove any uncertainty created by the Birdsville Amendments by entrenching a consistent concept of a "substantial degree of market power" throughout section 46. The Government has, however, been unsuccessful in dismantling the Birdsville Amendments from section 46. Consequently, section 46(1AAA) which sought to replace section 46(1AA) has been added, and the Birdsville Amendments remain untouched.

The law

Section 46(1) provides that a corporation that has a substantial degree of "power" in a market shall not "take advantage" of that power in that or any other market for an anti-competitive purpose.

Sub-section (1AA) provides that 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:

  1. eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
  2. preventing the entry of a person into that or any other market; or
  3. deterring or preventing a person from engaging in competitive conduct in that or any other market.

The new sub-section (1AAA) provides that if a corporation with a substantial degree of power in a market supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

Below cost pricing

The new section 46 (1AAA) seeks to facilitate the proof of circumstances where below-cost pricing might be a misuse of market power. In order to prove a contravention of this provision, it remains necessary to demonstrate that the corporation has taken advantage of its substantial degree of market power to eliminate or substantially damage a competitor, prevent the entry of a person, or deter or prevent a person from engaging in competitive conduct.

The differing feature between the new section 46(1AAA) and the existing 46(1AA) is the shift of a requirement from one where a corporation that has a substantial "share of the market", back to the concept of "market power" as set out in section 46(1). Further, section 46(1AA) specifically provides that recoupment of costs is not necessary to establish a breach of section 46(1). The result: two sections of the TPA now specifically address below cost pricing with differing thresholds.

Taking advantage

Section 46(1) provides that where a corporation has a substantial degree of power in a market it shall not "take advantage" of that power for an anti-competitive purpose. A (non-exhaustive) list of matters a court may have regard to when determining whether a corporation has taken advantage of its power are set out in the new section 46(6A):

  • whether the conduct was "materially facilitated" by the substantial degree of power in the market
  • whether the corporation engaged in the conduct "in reliance" on its substantial degree of power in the market
  • whether it is "likely" that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market
  • whether the conduct is "otherwise related" to the corporation's substantial degree of power in the market.

The court

To date, all litigation for an alleged contravention of section 46 was to be heard in the Federal Court. In an attempt to make litigation more accessible, these amendments to the TPA also give the Federal Magistrates Court the power to hear proceedings for a claim under section 46. The Federal Magistrates Court can provide injunctive relief under section 80 and award damages under section 82 of the TPA up to $750,000. There have been few section 46 cases before the Federal Court of late. With the reduced cost of filing a claim in the Federal Magistrates Court and the limited damages available, it will be interesting to monitor the take-up of cases before this Court for matters, in particular on below cost pricing, in light of the changes to section 46.

The result

The outcome of these amendments is that section 46(1AA) will continue to provide an avenue for recourse against below cost pricing where there is a proscribed purpose. However, the words of the section, without precedent, continue to create uncertainty for business due to the concept of a "substantial share of the market". The question of whether a small business, which is a large player in a relatively small market, could fall foul of the predatory pricing provisions by attempting to protect its business upon the entry of a new competitor is still unknown. Section 46(1AAA) now specifically provides that the recoupment of losses is not necessarily a determinant in whether a corporation has contravened section 46(1).

The result is now a two edged sword for prosecution of below cost or predatory pricing under section 46(1AA) and 46(1AAA). With different tests, corporations must exercise caution if they supply goods or services below cost to protect their market position or respond to aggressive pricing by new entrants.



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.

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