Dropping your prices can be a smart way to win customers, respond to a new competitor, or clear stock.
But if you go too low (and especially if you do it with the wrong intent), you can end up in “predatory pricing” territory - which is where competition law starts to matter.
This 2026 update reflects the current compliance focus on fair competition, transparent pricing, and market conduct in New Zealand. If you’re pricing aggressively (or you think someone is trying to price you out), it’s worth understanding where competitive pricing ends and illegal conduct can begin.
In this guide, we’ll break down predatory pricing in plain English, how the rules work in NZ, practical red flags, and what you can do to protect your business from day one.
What Is Predatory Pricing (In Plain English)?
Predatory pricing generally describes a situation where a business sets prices so low that competitors can’t realistically match them, with the aim of forcing those competitors out of the market (or stopping them from entering). Once the competition is weakened, the predator can often raise prices again.
Not every “cheap price” is predatory. Plenty of lawful reasons exist for very low pricing, such as:
- launch promotions and limited-time discounts
- end-of-line or clearance sales
- loss leaders (where you discount one product to attract customers)
- efficiency gains (you can profitably sell cheaper because your costs are lower)
- responding to normal competitive pressure
Predatory pricing is less about a single low price and more about the overall strategy and market impact.
If you’re still getting your head around the concept, it may help to compare it with other “unfair conduct” issues that can pop up in day-to-day trading, like unfair business practices or misleading pricing claims.
Why This Matters For Small Businesses
Predatory pricing can hit small businesses hard because you often don’t have the cash reserves to run at a loss for long.
On the other side, if you’re the one cutting prices, you want to be confident your strategy is aggressive-but-legal - and that you’ve documented your commercial reasons in case your pricing is questioned later.
When Does Low Pricing Become Illegal In New Zealand?
In New Zealand, predatory pricing is mainly dealt with under competition law - particularly the Commerce Act 1986.
Broadly, the Commerce Act is about protecting competition for the long-term benefit of consumers. It can apply where pricing conduct has the purpose, effect, or likely effect of substantially lessening competition, or where a business with substantial market power uses that power for an improper purpose.
Because the legal tests can be technical, it’s usually not as simple as “below cost = illegal”. The analysis tends to focus on things like:
- Market power: Does the business have substantial market power (or close to it) in a relevant market?
- Purpose and strategy: Is the pricing being used to damage or exclude competitors rather than compete on merit?
- Sustainability: Is the low pricing something the business can sustain due to efficiencies, or is it a deliberate loss-making strategy?
- Competitive impact: Is there likely to be harm to competition (not just harm to a single competitor)?
In practice, Commerce Commission investigations often require careful evidence and economic analysis - so it’s worth getting tailored advice early if the stakes are high.
Don’t Forget Your Consumer Law Obligations
Even if your pricing strategy doesn’t raise competition law issues, you still need to comply with consumer-facing rules, especially around accuracy and transparency.
For example, if you advertise a price or a “was/now” discount, the Fair Trading Act 1986 is relevant because it prohibits misleading or deceptive conduct. A good starting point is getting clear on rules around advertised price claims, particularly for online stores, marketplaces, and promo campaigns.
In other words: you can be “allowed” to discount heavily, but you’re not allowed to mislead customers about the discount, availability, or the real terms of the offer.
Red Flags: Signs A Pricing Strategy Could Be Predatory
Predatory pricing claims are fact-specific, but there are some common patterns that tend to raise concerns.
If you’re assessing your own plan (or a competitor’s conduct), look out for combinations of the following.
1) Pricing That Looks Detached From Commercial Reality
- Prices set below a plausible measure of cost for an extended period
- Discounting that continues well beyond a normal promotional window
- Pricing that seems to ignore obvious losses in the short term
Low prices alone don’t prove illegality. But sustained loss-making pricing can be a building block of a predatory pricing argument, depending on who’s doing it and why.
2) Targeted Undercutting In Specific Locations Or Customer Segments
A classic red flag is when the “too-low” pricing is highly targeted:
- only in the suburb where a new competitor opened
- only for the competitor’s key customers (e.g. business accounts)
- only for the product lines where the competitor makes most of their margin
This can sometimes suggest the pricing isn’t just general competitive discounting, but a strategy aimed at weakening a specific rival.
3) “Win Now, Raise Later” Behaviour
Another pattern is where prices are slashed aggressively while competitors are active, then jump up once the competitor exits or scales back.
Again, price increases aren’t automatically illegal - costs go up, and markets change - but the timing and internal reasoning can matter.
4) Pressure Tactics Tied To Pricing
Predatory pricing concerns can sometimes overlap with other competition and contracting issues, like:
- supplier pressure (e.g. forcing exclusive arrangements)
- bundling that effectively blocks competitors
- threats to “bleed someone out” if they don’t exit
Even if your prices are lawful, your communications about pricing can become evidence. If you’re putting things in writing, assume it could be read later by someone outside your business.
How To Price Aggressively Without Crossing The Line
If you’re a founder or business owner, you’re allowed to compete hard - and sometimes that means pricing sharply.
The goal is to do it in a way that’s commercially grounded, consistent with your brand, and defensible if questioned.
1) Be Clear On Your Commercial Reason (And Document It)
A helpful practical habit is to record the “why” behind major pricing decisions. This doesn’t need to be complicated.
For example:
- launch pricing for a new product (and the timeframe)
- end-of-season clearance
- reducing storage costs by moving old stock
- matching a competitor as part of normal competition
- temporary promo to build reviews or subscriptions
If you later need to explain your conduct, contemporaneous notes can be much more persuasive than explanations created after a dispute has started.
“Intro offer” pricing is common - but it should be real.
Make sure your marketing matches reality, including:
- clear start and end dates
- clear terms (e.g. eligibility, limits, exclusions)
- consistent pricing across channels (website, in-store, social, invoices)
This is where having solid customer-facing terms can save headaches. Many businesses also use Terms & Conditions to set expectations around promotions, availability, refunds, and changes to offers.
3) Be Careful With “Below Cost” As A Strategy
There’s no single magic “legal minimum price” for most industries in NZ. But if your pricing is below cost for a sustained period, it increases legal and commercial risk.
If you are discounting heavily, consider:
- Is it for a short, defined period?
- Is there a credible business reason (clearance, marketing budget, acquisition cost)?
- Are you doing it across the board, rather than only where a competitor is vulnerable?
- Would the strategy still make sense if the competitor didn’t exist?
These questions won’t replace legal advice, but they’re a useful internal “sense check”.
4) Make Sure Your Pricing Doesn’t Create Other Legal Issues
When pricing decisions are rushed, businesses sometimes accidentally create other problems - especially in advertising and contracting.
Examples include:
- advertising a low price but adding unavoidable fees later (which can be misleading)
- offering “price match guarantees” without clear rules
- changing prices mid-contract without a right to do so
It helps to remember that enforceability often comes back to the basics of contract formation - offer, acceptance, and clear terms. If you’re ever unsure whether a quote or online checkout price is binding, it’s worth understanding what makes a contract legally binding in the first place.
5) Build Your “Competition Compliance” Into Your Day-To-Day Systems
Predatory pricing risk tends to increase when pricing is decided informally or inconsistently, like in ad hoc Slack messages or “just match them” phone calls.
Some practical ways to stay on track include:
- having an internal approval process for deep discounts
- setting maximum discount levels without manager approval
- training staff on what they should never write in emails (e.g. “let’s drive them out”)
- reviewing your pricing policy when expanding into a new area
If you’re scaling and bringing on staff, your employment paperwork and policies also matter - not because they regulate pricing, but because they control how your team communicates and follows processes. Many businesses formalise expectations early with an Employment Contract and supporting workplace policies.
What To Do If You Suspect A Competitor Is Using Predatory Pricing
It’s frustrating to watch a competitor sell at prices that seem impossible to sustain - especially when you’re confident you’re running a legitimate business and they appear to be “buying” the market.
The key is to respond strategically, not emotionally, and to preserve evidence from day one.
1) Collect Evidence (Before It Disappears)
If you think a competitor is engaging in predatory pricing, start a simple evidence file. This might include:
- screenshots of advertised prices (with dates)
- copies of catalogues, emails, and promotions
- notes on when and where pricing changes occur
- customer statements (recorded carefully and accurately)
- your own pricing and cost data (to show why matching is unsustainable)
Evidence matters because competition issues are rarely proven by “everyone knows they’re doing it”. Regulators and advisers need facts.
2) Sanity-Check Whether It’s Actually Predatory (Or Just Tough Competition)
This is the hard part: sometimes the competitor simply has lower costs, better supplier deals, or a different business model.
Before escalating, ask:
- Are they discounting everything, or only where you compete?
- Is it time-limited (e.g. a two-week promo) or ongoing?
- Are they a major player with market power, or just another small business trying to grow?
If it’s “just” aggressive competition, your best response might be commercial rather than legal - like improving differentiation, focusing on service, or tightening your offers and bundles.
3) Get Legal Advice Early (So You Don’t Create Your Own Risk)
When you’re under pressure, it’s tempting to respond with your own extreme discounts or public claims like “they’re illegal” or “they’re scamming customers”.
That can backfire. The safest approach is to speak with a lawyer about:
- whether the conduct could breach the Commerce Act 1986
- any risks under the Fair Trading Act 1986 if you respond publicly
- your options for correspondence, negotiation, or escalation
Depending on the facts, you might also consider a general competition and conduct review through a legal consultation so your response plan is grounded and consistent with your wider terms, supply arrangements, and customer commitments.
4) Consider Your Reporting Options
If the issue looks serious and has broader market impact, you may consider raising concerns with the Commerce Commission (which enforces the Commerce Act and also has roles under consumer protection law). Whether the Commission will investigate depends on the facts, evidence, and public interest factors.
A lawyer can help you prepare a clear, well-structured summary of the conduct and why it matters, which can make the process less overwhelming.
5) Protect Your Business While The Issue Plays Out
Even if you take steps to challenge the pricing, these disputes can take time. In the meantime, focus on protecting your foundations, such as:
- tightening payment terms and credit risk with customers
- reviewing supplier terms and exclusivity obligations
- making sure your advertising is squeaky clean
- getting your core contracts in order so you’re not leaking risk elsewhere
For many businesses, the most practical “defence” is making sure your legal set-up is solid so you can withstand a period of market pressure without disputes multiplying in other areas.
Key Takeaways
- Predatory pricing is generally about using unsustainably low prices to harm competition, not just offering a genuinely good deal.
- In New Zealand, predatory pricing risk commonly sits under the Commerce Act 1986, and the analysis often turns on market power, purpose, and competitive effect.
- Even when low prices are lawful under competition rules, you still need to comply with consumer protection laws like the Fair Trading Act 1986 - especially around advertised prices and promotions.
- If you’re pricing aggressively, document your commercial reasons, keep promotions time-limited, and avoid communications that suggest an exclusionary purpose.
- If you suspect predatory pricing, collect evidence early, sanity-check whether it’s simply tough competition, and get tailored legal advice before escalating or responding publicly.
- Strong business foundations (clear terms, consistent processes, and good documentation) help you stay protected from day one - especially when competition heats up.
If you’d like help reviewing your pricing strategy, updating your terms, or responding to a competitor’s conduct, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
