Predatory Pricing

Topics: Competition law, Sherman Antitrust Act, Supreme Court of the United States Pages: 49 (16100 words) Published: March 18, 2011
Quo vadis? Towards an effective predatory pricing provision
Garth Campbell*
The level of criticism directed at s 46 of the Trade Practices Act 1974 (Cth) for its inability to capture predatory pricing indicates that smaller businesses are extremely concerned about this practice. Such criticism reached its peak following the High Court’s decision in Boral Besser Masonry Ltd v ACCC (2003) 215 CLR 374, which rejected a claim of predatory pricing. Since then, the Birdsville Amendment and other recent amendments to s 46 have attempted to more effectively capture predatory pricing by defining it more accurately. However, it remains to be seen whether these amendments will be successful. This article assesses the application and effectiveness of the Birdsville Amendment by applying it to the facts of the Boral decision, in effect, re-deciding the case on the current law, and attempts to define the characteristics of a truly effective predatory pricing provision.

Predatory pricing usually occurs when a large market participant unfairly lowers its prices so as to damage its competitors, drive them from a market, or deter them from entering a market, and then raises its prices to take advantage of the reduction in competition it has generated. Since the adoption of the Sherman Antitrust Act 1890 (US), jurisdictions around the world have attempted to penalise predatory pricing. However, determining whether pricing is unfair or predatory, as distinct from legitimate and competitive, is a difficult task. Legitimate competitive pricing can also damage competitors, and is hard to distinguish from predatory pricing. The danger inherent in regulating this area is that regulations to penalise predatory pricing may also inadvertently penalise legitimate competitive pricing. Such regulations would have a serious and broad based anticompetitive effect on the economy as a whole due to the central function that competitive pricing performs in any free market economic system. Any provision targeting predatory pricing must therefore be drafted very carefully. As a means of dealing with this difficulty, most jurisdictions have attempted to proscribe predatory pricing by way of generalised provisions drafted to prohibit “monopolisation”, or a “misuse of market power”, or to target “unfair pricing”. These provisions give courts a wide latitude to deal with specific allegations of predatory pricing, and allow governments to avoid inadvertently legislating against legitimate competitive pricing. The problem with these general provisions is that they lack certainty, making it difficult for businesses, government regulators, and even the courts to know when a breach has occurred, and leading to inconsistency in application. An effective predatory pricing provision is one that accurately defines predatory pricing so as to efficiently capture predatory pricing conduct, without inadvertently capturing legitimate competitive pricing behaviour. By reference to overseas and Australian legislation and jurisprudence, this article attempts to find an answer to the difficult question of what are the characteristics of an effective predatory pricing provision.



In Australia, many attempts have been made to capture predatory pricing under s 46 of the Trade Practices Act 1974 (Cth) (TPA),1 which, until recently, relied on a general misuse of market power provision to prosecute predatory pricing. * 1

Gilbert + Tobin, Lawyers, Sydney. Predatory pricing was initially prohibited under a similar provision in the Australian Industries Preservation Act 1906 (Cth).


(2009) 17 TPLJ 82

Quo vadis? Towards an effective predatory pricing provision

Section 46(1) of the TPA provides that a corporation with a “substantial degree of power in a market” must not “take advantage of that power” for the purpose of: (a) eliminating or substantially damaging another competitor; (b) “preventing the entry of a...

References: 80 81
Australian Government, Response to the Senate Inquiry Into the Effectiveness of the Trade Practices Act 1974 in Protecting Small Business (2004) p 7.
(2009) 17 TPLJ 82
(2009) 17 TPLJ 82
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