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The proposed new predatory pricing prohibition in the Commerce (Promoting Competition and Other Matters) Amendment Bill (the Bill) may have the unintended consequence of discouraging low prices to the disadvantage of consumers.
We urge a rethink. The closing date for submissions on the Bill is Wednesday 4 February 2026.
This article concludes our five-part series on the Bill. Our earlier articles are here, here, here and here.
The current position
Price competition is at the heart of the competitive process and is valued by both competition law and consumers. But predatory pricing – very low prices introduced either over a sustained period or at strategic times, by a firm with substantial market power, to price rivals out of the market or to deter new entry (i.e. with a purpose or likely effect of lessening competition) – is anti-competitive.
Predatory pricing is already recognised through the Courts as conduct that breaches the broader misuse of market power prohibition (section 36 of the Commerce Act). The Bill proposes to go a step further and put in place a test specifically prohibiting predatory pricing
A predatory pricing provision
The proposed prohibition is intended to address perceived problems regarding clarity and enforceability under the current law.1
The Ministry of Business, Innovation and Employment (MBIE) observes that enforcement has been limited and suggests that this may be due to the lack of a clear statutory definition of what constitutes below cost pricing – an uncertainty MBIE considers has been compounded by the 2022 amendments to section 36.
The proposed test, as drafted:
- applies to a market participant that has “a substantial degree of power in a market” within the meaning of section 36, and engages in predatory pricing “in that market or in any other market in which [the market participant] supplies, or is likely to supply, goods or services”, directly, or indirectly
- defines predatory pricing as:
- “pricing below average variable cost or average avoidable cost”, and/or
- “pricing above average variable cost or average avoidable cost but below long-run average incremental cost or average total cost if the pricing is for an exclusionary purpose”
for a “sustained period in the relevant market”
- defines “average avoidable cost”, “average variable cost” and “long-run average incremental cost”
- deems predatory pricing as conduct “having the purpose, or as having or being likely to have the effect, of substantially lessening competition in the market in which the predatory pricing occurred”, for the purposes of section 36, and
- provides a ‘safe harbour’ for “short-term” promotional and below cost pricing that is not part of a pattern of behaviour over a sustained period. “Short term” is defined as no longer than three months in aggregate in any 12-month period.
Risk of unintended consequences
The provision as drafted does not clarify the legal position, creates new uncertainties and risks unintended consequences.
Predatory pricing should not be a ‘per se’ offence
The prohibition makes predatory pricing a ‘per se’ offence in that it would automatically prohibit pricing below cost in certain circumstances (e.g., at least some risk would arise for any below-cost pricing that lasts for a period beyond three months in a year).
This is a change to the current position, where the purpose or likely effect of substantially lessening competition needs to be established. We consider that this test should remain.
That is because competitive and anti-competitive pricing practices differ significantly, e.g., in different industries, so pricing that looks similar can have very different impacts. By banning certain below-cost pricing per se, the Bill creates a real risk of deterring pro-competitive low pricing.
Per se treatment is generally reserved – in New Zealand and internationally – for that very narrow category of conduct which can never be procompetitive; for example, cartel conduct. Low pricing, in contrast, is presumptively procompetitive and only in very narrow circumstances anticompetitive. It is therefore unsuited to per se treatment.
As well, the prohibition would apply in markets in which the “predator” does not have market power, meaning a business with market power would need to take care to avoid the relevant below-cost pricing in all markets it participates in.
Proposed predatory pricing definition creates uncertainty
There are shortcomings in the wording that make the application of the prohibition problematic. In particular, it is not clear how the “average variable cost” and “average avoidable cost” definitions should be applied to bundled goods and services. More generally, the uncertainties that exist under the current prohibition (e.g. around the definition of “average avoidable cost”) have not been clarified and would continue to cause the usual debates.
Meaning of “sustained period” is unclear
The prohibition applies to pricing that is in place for a “sustained period”. This term is not defined.
While it is reasonable to assume a “sustained period” is longer than the “short term” ‘safe harbour’, we assume it is not the inverse of that safe harbour period. That is, that “sustained period” does not mean any pricing that is sustained for a period longer than three months in aggregate in a 12-month period, but that is the starting point for assessing risk.
The meaning of and means by which a “sustained period” should be determined is unclear and is likely to be the subject of disagreement
1. Ministry of Business, Innovation and Employment, “Regulatory Impact Statement: Targeted review of the Commerce Act 1986” (14 August 2025), at pages 68-69.
