The Australian Competition and Consumer Commission has cleared Coles in milk price wars, saying there is no evidence that the supermarket giant has acted in breach of the Competition and Consumer Act 2010 (CCA).

The ACCC has been conducting industry wide enquiries with dairy market participants including industry associations, milk processors, supermarkets and independent retailers to assess whether Coles is or has been in breach of the two predatory pricing provisions of the CCA.

Section 46(1) prohibits businesses that have substantial market power from taking advantage of that power for the purpose of (a) eliminating or substantially damaging a competitor, (b) preventing the entry of a person into a market and/or (c) deterring or preventing a person from engaging in competitive conduct in a market.

And section 46(1AA) prohibits businesses with a substantial share of a market, from selling goods or services for a sustained period at a price below the relevant cost of supply. As with s46(1), to breach this provision there must be evidence that a business acted with an anti-competitive purpose.

No predatory pricing

According to ACCC, the major impact of the reduction in milk prices since January seems to have been a reduction in the supermarkets’ profit margins on house brand milk. These price reductions have benefited consumers who purchase house brand milk.
ACCC Chairman Graeme Samuel said,“It is important to note that anti-competitive purpose is the key factor here.

“Price cutting, or underselling competitors, does not necessarily constitute predatory pricing. Businesses often legitimately reduce their prices, and this is good for consumers and for competition in markets.”

ACCC enquiries have revealed evidence that Coles’ purpose in reducing the price of its house brand milk was to increase its market share by taking sales from its supermarket competitors including Woolworths. This is consistent with what the ACCC would expect to find in a competitive market.

After Coles price reductions, Woolworths and other supermarket retailers have also reduced prices for house brand milk.
The ACCC’s enquiries show that there is a significant variation between respective costs of supply and operating margins among supermarket operators.