Anti Competitive Law News March 2008
Small Businesses and Below-Cost Pricing
In 2007 the ‘Birdsville Amendments’ to section 46 of the Trade Practices Act were enacted by the Federal Government. The amendments were originally expected to benefit small business, but this may not be their outcome in practice.
The amendments create a new prohibition in section 46 directed at ‘predatory below-cost pricing.’ Predatory pricing is only illegal if it meets the criteria set out this section. The supposed purpose of the statute is to promote competition.
The prohibition now included s46 stipulates the following:
Any corporation with a significant share of the market, which provides goods or services for a sustained period at a price below the relevant cost to the corporation of the goods and services, would be in breach the statute if they did so for the purpose of:
- Eliminating/damaging the competitor
- Preventing entry by another person into any market or
- Deterring/preventing a person from engaging in competitive conduct in any market.
The relevant purpose need only be one of the above purposes.
Therefore, if a company wants to retain its share of the market against a newcomer and does so by trying to meet or beat the entrant’s price this is said to be permissible under the Act. When one considers the purpose of the Act, these actions would be considered normal.
A breach of s46 will have occurred though, if the existing company tries to merely meet the newcomer’s price, if its costs are higher.
Many small business lobbyists believe that this test is too severe. It is though that a weaker test should be included so that those affected by vigorous price cutting will be able to sue.