Predatory Pricing: Definition, Example & Why It’s Used (2026 Guide)

Predatory pricing is a business strategy where a company deliberately sets its prices very low—sometimes even below the cost of production—with the intention of pushing competitors out of the market. Once rivals have exited and competition has diminished, the company may then raise prices to recover its earlier losses and increase profits. This practice is a significant concern in Australia, especially as cost-of-living pressures and market consolidation continue to affect consumers and small businesses in 2026.

In Australia, predatory pricing is prohibited under the Competition and Consumer Act 2010 if it substantially lessens competition. The Australian Competition and Consumer Commission (ACCC) is responsible for investigating and taking action against such conduct. However, proving that a company has engaged in predatory pricing—particularly demonstrating intent and the effect on competition—can be challenging.

Key Features of Predatory Pricing

• Sustained below-cost pricing: Prices are set below the cost of production or supply for an extended period.
• Intent to eliminate competition: The aim is to force competitors, especially smaller or new entrants, out of the market.
• Potential for later price increases: Once competition is reduced, prices may be raised to recoup earlier losses.

Predatory pricing has been a topic of debate in Australia’s supermarket sector. Large supermarket chains have, at times, been accused of selling staple products like milk or bread at prices below the cost of production. This can make it difficult for smaller, independent grocers to compete, particularly in regional areas where consumer choice is already limited.

A typical scenario might unfold as follows:

• A major supermarket chain reduces the price of a staple product to a level that is unsustainable for smaller competitors.
• Independent grocers are unable to match these prices without incurring significant losses.
• Over time, some smaller businesses may be forced to close or stop stocking the affected products.
• With fewer competitors remaining, the larger chain may then increase prices.

While not every instance of aggressive pricing is deemed predatory or illegal, the risk of reduced competition and higher prices in the long term remains a concern. The ACCC continues to monitor such practices, especially as supply chains and cost pressures evolve.

Businesses may engage in predatory pricing for several reasons:

• To gain or maintain market dominance: By undercutting rivals, a company can increase its market share and benefit from economies of scale.
• To deter new entrants: Low prices can discourage new businesses from entering the market, as they may not be able to compete profitably.
• To attract price-sensitive customers: Temporary low prices can draw in shoppers, even if the strategy is not sustainable in the long run.

However, while consumers may benefit from lower prices in the short term, the long-term effects can be negative. Reduced competition can lead to higher prices, less choice, and decreased innovation once the dominant company raises prices after competitors have exited.

The regulatory environment in Australia is evolving in response to ongoing concerns about predatory pricing. In 2026, the ACCC has been granted stronger investigative powers through amendments to the Competition and Consumer Act. There is also increased attention on digital platforms and online marketplaces, where rapid price changes can affect competition on a national scale.

For example, sudden price drops on e-commerce platforms can quickly impact smaller sellers, making it difficult for them to remain viable. The speed and reach of online marketplaces mean that anti-competitive pricing strategies can have widespread effects in a short period.

Both consumers and business owners should be aware of the signs that may indicate predatory pricing is occurring:

• Sudden, significant price reductions from large or dominant companies, especially if prices fall below what smaller competitors can sustain.
• Consolidation in the market, such as fewer independent businesses or reduced local options.
• Price increases following the exit of competitors from the market.
• Announcements of ACCC investigations or legal actions involving major retailers or digital platforms.

For business owners, understanding the distinction between vigorous competition and illegal predatory pricing is essential. The ACCC is focusing enforcement efforts on sectors experiencing cost-of-living pressures, including groceries, fuel, and digital services. If you suspect anti-competitive conduct, it is important to keep thorough records and seek legal advice early.

Predatory pricing can have far-reaching effects on consumers and the broader economy. While low prices may seem beneficial at first, the reduction in competition can ultimately lead to higher prices, fewer choices, and less innovation. This is particularly significant in essential sectors such as groceries and fuel, where consumers rely on fair pricing and access to a range of products and services.

As Australia’s regulatory landscape continues to adapt in 2026, the ACCC’s enhanced powers are aimed at ensuring markets remain competitive and that consumers are protected from anti-competitive practices. Ongoing vigilance from both regulators and the public is necessary to identify and address predatory pricing when it occurs.

Predatory pricing is more than just a theoretical concern—it can reshape entire markets and affect the daily lives of Australians. As regulatory scrutiny increases in 2026, it is important for both consumers and businesses to recognise the warning signs and understand the rules that govern competition in Australia. Staying informed and alert can help ensure that markets remain fair, competitive, and beneficial for everyone.