Predatory Pricing: How Low Can You Go? Before It’s Illegal

Competing on price is part of doing business. Discounts, specials and intro offers can be great for winning customers in Australia’s busy market.

But there’s a line. If prices are pushed so low that the goal is to squeeze competitors out and damage competition, you can run into serious legal trouble under Australian competition law.

In this guide, we’ll explain what predatory pricing is, where the legal line sits, how to tell healthy discounting from unlawful conduct, and practical steps to keep your pricing strategy compliant.

What Is Predatory Pricing In Australia?

Predatory pricing is a strategy where a business with substantial market power deliberately prices below cost for a sustained period to eliminate or substantially damage competitors, then recoups losses later by raising prices once competition weakens.

Australian law doesn’t ban low prices. In fact, low prices are usually a sign of healthy competition. What’s unlawful is using your pricing in a way that has the purpose, effect or likely effect of substantially lessening competition.

Key ideas to understand:

• Substantial market power: This means the ability to act without being constrained by competitors, suppliers or customers. You don’t need to be a monopoly, but smaller players rarely have this level of power.
• Below-cost pricing: Pricing below an appropriate measure of cost (for example, average variable cost). A short, one-off clearance is different from an extended below-cost campaign targeted at rivals.
• Objective and effect: Regulators and courts look at why you priced the way you did (internal documents matter) and what impact it has or is likely to have on competition, not just one competitor’s profits.

Put simply: very low prices are not illegal by themselves. It’s the combination of market power, strategy, and anti-competitive effect that tips it into predatory pricing.

How Low Can You Go Before It’s Illegal?

There isn’t a fixed “minimum price” you must charge. The test in Australia focuses on conduct and competition effects, rather than a strict dollar threshold.

When regulators assess whether pricing crosses the line, they consider:

• Market power: Do you have the ability to set prices or conditions without being disciplined by competitors? Evidence includes market share, barriers to entry, customer switching costs, and supply chain power.
• Pricing below cost: Are you sustaining prices that are below a relevant measure of cost, and for how long? A one-week grand opening special may be fine; a year-long loss in a targeted region to drive out a challenger looks different.
• Purpose and likely effect: Internal emails, strategy decks and incentives that show an intent to “discipline” or “kill” a competitor can be very persuasive. Regulators also look at whether the conduct is likely to substantially lessen competition, not just harm a rival.
• Recoupment: Can you reasonably raise prices later to recoup losses once rivals exit or shrink? If yes, your conduct will attract greater scrutiny.

By contrast, competing hard on price to win customers, where you’re constrained by rivals and not targeting elimination, is generally lawful. The difference often comes down to your market position, your documented rationale, and the real-world impact on competition.

Predatory Pricing Vs Healthy Discounting: Key Differences

It helps to compare predatory pricing with common, lawful discounting tactics. The following are typical and generally permissible when done transparently and without anti-competitive purpose.

Loss Leading

Loss leaders are products priced at or below cost to attract customers, with the expectation they’ll buy profitable items too. Supermarkets use this to create baskets of goods.

Lawful, if:

• It’s a broad retail strategy, not targeted to eliminate a competitor.
• It’s short-term or limited in scope, and you don’t have substantial market power in the relevant market.

Penetration Pricing

Short-term, lower-than-usual prices to enter a market or launch a new product and build demand.

Lawful, if:

• It’s time-limited and economically rational for market entry.
• It’s not aimed at forcing specific rivals out in a way that will likely reduce competition.

Price Matching

Promising to match a competitor’s price is common. It signals competitiveness and can be pro-consumer.

Lawful, if:

• You independently decide to match and do not coordinate with competitors.
• You avoid any communications or practices that look like price signalling or collusion.

Clearance And Seasonal Sales

Discounting end-of-season stock or running genuine clearance sales is normal retail practice.

Lawful, if:

• It’s transparent, time-bound and not targeted at damaging a particular rival.
• You avoid misleading claims about discounts or “was/now” pricing.

Where It Goes Wrong

Even common tactics can cross the line when combined with substantial market power and an anti-competitive objective. Warning signs include:

• Internal strategy documents discussing “destroying” a rival or “starving them of cash.”
• Below-cost pricing focused on specific regions or channels where a new entrant relies on sales.
• Policies to fund prolonged losses in targeted categories to force exit, followed by plans to raise prices.

Pricing Compliance Under The Australian Consumer Law

Even when your pricing is competitive (and not predatory), it still must comply with the Australian Consumer Law (ACL). Several everyday pricing practices can cause problems if not handled correctly.

Misleading Or Deceptive Conduct

All advertising must avoid misleading or deceptive conduct under the ACL. This covers headline prices, “was/now” savings, and comparisons.

It’s important to check that your promotions don’t create a false overall impression. If you’re unsure how far the law goes, see guidance on Section 18 ACL as it applies to marketing and pricing.

False Or Misleading Price Representations

Specific rules apply to price statements (e.g. strike-through pricing, “RRP” references, or bundled offers). If you reference recommended prices or savings, ensure the comparison is genuine and current. For a closer look at common pitfalls, see Section 29 ACL on false or misleading representations.

Advertised Price And Drip Pricing

Your advertised price must reflect the total price payable so customers aren’t surprised by hidden fees at checkout. “Drip pricing” (revealing fees late in the process) can be misleading.

Simple rule: if a fee is unavoidable, include it in the upfront price or clearly disclose it in a way that’s prominent and not buried in fine print. Our guide to advertised price laws breaks down these obligations in plain English.

RRP, MSRP And “Was/Now” Claims

Using RRP/MSRP claims or “save X%” language requires care. You should only use RRPs if they’re genuine and current for comparable goods or services. “Was/now” claims should reflect a real prior price used for a reasonable period.

For a practical overview, see the common rules around RRP vs MSRP claims and how to substantiate discount statements.

Payment Methods, Surcharges And Cash

If you apply payment surcharges, ensure they’re compliant and not excessive. If you limit tender types (for example, card-only stores), be mindful of consumer expectations and signage so there’s no misleading impression about what you accept.

Practical Risk Checks For Your Pricing Strategy

Here are practical steps to help your team price confidently while staying on the right side of the law.

1) Document The Commercial Rationale

Well-kept records can be your best defence. When running a discount or campaign, note the business reason (e.g. seasonal clearance, launch, inventory turnover, price-matching a rival’s promotion) and expected timeframe.

If you’re a larger player, be extra disciplined. Clear documentation shows you’re competing on the merits, not aiming to remove rivals.

2) Track Costs And Profitability

Know whether a promotion is below cost, roughly at cost, or above cost. If below-cost pricing is used, ensure it’s short-term, tied to a legitimate goal (like clearing stock), and not targeted at weakening a specific competitor.

3) Avoid Problematic Language In Internal Comms

Emails and chat logs can tell a story. Avoid terms like “kill their business,” “bleed them dry,” or “starve the entrant.” Focus language on customer value, efficiency, inventory, or promotional goals.

4) Set Approval Thresholds

Establish approval rules for deeper or longer discounts. Require a short written rationale. This creates a compliance gate and a paper trail showing a legitimate business purpose.

5) Centralise Pricing Policies And Training

Have a clear pricing playbook and provide regular training about competition law. Emphasise that coordinating with competitors-directly or indirectly-is off-limits, and that price signalling is risky.

6) Keep Consumer-Facing Materials Accurate

Audit your ads, website banners and checkout flows for accuracy and completeness. Ensure the total price is clear, any surcharges are explained, and discount claims are substantiated. Many businesses embed these rules into their Terms of Trade and Website Terms and Conditions so staff have a single source of truth.

7) Stress-Test “Price-Match” And “Lowest Price” Claims

If you promise the “lowest price” or to beat any price, define the scope and exclusions carefully. Ensure your systems can honour the claim, or narrow it so it’s true and manageable.

8) Sense-Check Competitor Responses

You can respond to a rival’s discount, but never coordinate. Avoid discussions with competitors about pricing, future promotions, or capacity; that can raise cartel risks. Compete independently and document your own basis for decisions.

What To Do If A Competitor Undercuts You

Being undercut can be frustrating. Here’s a measured approach.

Step 1: Analyse, Don’t Assume

Check whether the rival’s price is a short-term special, a clearance, a launch promotion, or a sustained below-cost move. Look for patterns (duration, geography, product mix) before jumping to conclusions.

Step 2: Gather Evidence

Collect ads, screenshots, and dates. If you suspect sustained below-cost pricing by a powerful player, keep notes of the impact on your business and the market (e.g. exit of suppliers, barriers for new entrants).

Step 3: Calibrate Your Response

You can compete on price, value, bundling or service. But avoid matching a below-cost price that would put you at risk or encourage a race to the bottom. Consider alternative promotions-bundles, loyalty perks, or value-adds-that protect your margins.

Step 4: Consider Legal Options

If you believe the conduct is predatory and harming competition, you can seek advice about raising concerns with the ACCC. At the same time, ensure your own pricing and marketing comply with the ACL (for example, your discount and comparison claims should align with advertised price rules and the general prohibitions on misleading conduct).

Step 5: Strengthen Your Foundations

Protect your customer relationships and brand. Clear Terms of Trade, consistent online policies, and solid service standards can help you retain customers even when rivals discount aggressively.

FAQs: Common Pricing Scenarios

Can I Run Below-Cost “Grand Opening” Deals?

Generally yes, if they’re short-term, genuine promotions with a clear commercial purpose, and you don’t have substantial market power. Keep records explaining the rationale, scope and timeframe.

Is It Illegal To Promise “We’ll Beat Any Price”?

Not inherently. Make sure the claim is accurate, define exclusions clearly, and ensure your systems can honour the promise. Misstating or failing to honour the claim can be misleading under the ACL.

Can I Advertise RRP Savings?

Yes, if the RRP is genuine and current for comparable goods and your “save X%” calculation is correct. See the rules around RRP vs MSRP and ensure your discount mechanics are accurate.

Do I Need A Formal Pricing Policy?

It’s strongly recommended-especially for larger or multi-site businesses. A written policy, staff training, and documented approval thresholds reduce the risk of mistakes and help demonstrate compliance. If you need tailored consumer law guidance, our team can help through our ACL consultation package.

Key Takeaways

• Low prices are legal and pro-consumer, but pricing that aims to eliminate competitors-combined with substantial market power-can cross into predatory pricing.
• There’s no fixed “minimum legal price”; the test focuses on your market power, whether you’re pricing below cost, and the purpose or likely effect on competition.
• Common strategies like loss leaders, penetration pricing, price matching and clearances are lawful when done transparently and without anti-competitive intent.
• Everyday pricing must comply with the ACL-avoid misleading claims, make total prices clear, and substantiate any RRP or “was/now” comparisons under the rules for advertised prices and price representations.
• Protect your business by documenting pricing rationale, setting approval thresholds, training staff, and aligning your Terms of Trade and Website Terms and Conditions with your promotions.
• If you suspect a rival’s conduct is anti-competitive, gather evidence, consider your options, and get advice before acting.

If you would like a consultation on pricing compliance and predatory pricing risks in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.