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On 25 September 2007, the Trade Practices
Act (Act) was amended to help overcome perceived difficulties
faced by the Australian Competition and Consumer Commission
(ACC) and others, in regulating below-cost pricing or
anti-competitive behaviour, known as the “Birdsville
Amendment”.
Section 46 of the Act prohibits the misuse
of market power, which has in the past, been used to
regulate predatory pricing behaviour. Prior to the Birdsville
Amendment, section 46 required proof of:
(i) substantial market power;
(ii) that the conduct is taking advantage of that power; and
(iii) a proscribed purpose.
The former section 46 provisions have been
narrowly interpreted by the High Court, holding that
to have market power, a company must be able to recoup
losses from below-cost pricing by raising prices after
damaging its competitors.
Following the Birdsville Amendment, the
requirement for market power has been replaced with the
new criterion of “substantial market share”.
The concept of below-cost pricing has been introduced
with reference to a price less than the “relevant
cost” and conduct for a “sustained period”,
however the new terminology has not been defined in the
Act.
The proscribed purposes are the same, namely:
(i) eliminating or substantially damaging
a competitor;
(ii) preventing the entry of a person into a market; or
(iii) deterring or preventing a person from engaging in competitive conduct.
The significance of the difference between
market share and market power has yet to be tested. However,
criticisms of the new amendments have prompted the Rudd
Government to plan for further section 46 amendments.
The proposed changes are said to include
a determination of market power of a company even if
there is no proof that such a company can recoup its
losses. How this will be translated into the legislation
is yet to be seen.
In the interim, the prospect of further
section 46 changes may have the unintended consequence
of diminishing competitive activity to the extent that
it imposes costs on businesses.
While we await the Government’s intended
further amendments to section 46, we suggest that businesses
should not be deterred from exercising the practices
it should already have in place. That is, identifying
a sound business rationale for your business conduct
and engaging in vigorous competitive practice.
To further discuss your business needs
or how these changes may affect your business, please
contact Andrew Bland at abland@blandslaw.com.au
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