Australia's Radical Predatory Pricing Reforms: What Business Must Know

Abstract

Radical changes to the Trade Practices Act have the potential to affect significantly the ability of businesses to engage in vigorous price competition. These changes are designed to prohibit what is colloquially referred to as predatory pricing; the practice of a firm temporarily reducing its prices to a level designed to eliminate its competitors so that, free of competition, it can thereafter lift them to supra-competitive levels. Unfortunately, because of its scope and the ambiguous new concepts it employs, the section has the potential to apply to all forms of vigorous price competition and creates significant risks for those businesses who seek to compete with their rivals by systematically, or irregularly, selling at lower prices than they do. This note examines the section’s nature and scope and identifies the pitfalls that it presents for such firms.

Keywords: Predatory pricing, Trade Practices Act

JEL Classification: K21