Skip to content.

Home

Allens Arthur Robinson

Focus: Competition Law – July 2008

Predatory pricing: are we back to 'market power'?

In brief: The Federal Government has introduced into Parliament further amendments to the Trade Practices Act 1974 (Cth). Among these changes are proposed amendments to the existing predatory pricing laws that were introduced in late 2007. Partner David Brewster (view CV) and Lawyer Adel Mohamed report.

How does it affect you?

  • In the event that the proposed amendments to the Trade Practices Act 1974 (Cth) are enacted:
    • The prohibition on predatory pricing that was introduced by the 'Birdsville Amendments' in 2007 will remain; however, in a welcome development, the 'market share' test will be repealed and replaced by the 'market power' test used elsewhere in section 46.
    • There will be new factors that courts must consider in determining whether a corporation has taken advantage of its market power. In particular, the courts will be able to have regard to whether the corporation's conduct is otherwise related to its market power, rather than simply whether the corporation would/could have engaged in the conduct in a competitive market, which is the current test. The requirement to establish taking advantage of market power has proved a hurdle in many recent s46 cases, and the amendment has the potential to significantly widen the application of the section.
    • Jurisdiction over s46 matters will be conferred on the Federal Magistrates Court. This may lead to an increase in litigation, particularly by small businesses, in relation to refusals to supply, price discrimination and predatory pricing.

From 'market share' to 'market power'

On 26 June 2008, the Federal Government introduced the Trade Practices Legislation Amendment Bill 2008 (the Bill) into Parliament. In an attempt to reduce uncertainty over the operation of the Birdsville Amendments introduced by the previous Federal Government, the Bill amends the predatory pricing provision in subsection 46(1AA). The amendments mean that subsection 46(1AA) will prohibit a corporation with a substantial degree of power in a market from taking advantage of that power by supplying goods or services below their relevant cost for a prescribed purpose. The proposed amendment changes the previous test, which was based on whether the corporation had a 'substantial share' of the market. This is a welcome development.

Conduct constituting below-cost pricing for the purposes of subsection 46(1AA) remains unchanged. Unfortunately, the meaning of many of the expressions used in subsection 46(1AA), such as 'relevant cost' and 'sustained period', remains unclear.

Return to top

Taking advantage

The Bill clarifies the meaning of the term 'take advantage' for the purposes of s46. In determining whether a corporation has taken advantage of its substantial degree of power in the market, the Bill provides that a court may have regard to:

  • whether the conduct was materially facilitated by the corporation's substantial degree of power in the market;
  • whether the corporation engaged in 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; and
  • whether the conduct is otherwise related to the corporation's substantial degree of power in the market.

While some of these factors do little more than reflect current judicial approaches to the determination of a taking advantage of market power, the amendment relating to whether conduct is otherwise related to the corporation's substantial power is significant. Previously, a corporation had to use its market power to take advantage of that power. This amendment has the potential to significantly expand the current test used by the courts by allowing matters not only involving a use of market power but merely being related to the market power to be considered.

Return to top

Recoupment

The Bill provides that a corporation may contravene subsection 46(1AA) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services at a price less than the relevant cost.

Return to top

Federal Magistrates Court

The Bill confers jurisdiction on the Federal Magistrates Court for s46 matters. The aim of this amendment is to reduce the costs and delays associated with bringing s46 matters in the Federal Court, particularly for small business. This amendment has the potential to lead to an increase in the amount of s46 litigation, particularly by small businesses, in relation to conduct that is often alleged to constitute a contravention of s46, such as refusals to supply, price discrimination or predatory pricing. The Federal Magistrates Court, however, does have a maximum limit on damages claims of $750,000.

Return to top

Conclusion

Some of the proposed amendments, in particular that the Federal Magistrates Court be given jurisdiction over s46 matters, have been subject to significant criticism. If the Bill is passed as proposed, then it is likely that pricing and supply decisions will become the subject of greater scrutiny and companies will have to carefully consider their exposure to the expanded scope and new uncertainties of s46.

Return to top

For further information, please contact:

Return to top

Bookmark with

What are these?

Recent Competition Law publications