ECJ Rules on ‘Below Cost’ Selling

September 24, 2012

ECJ Rules on ‘Below Cost’ Selling

Below cost selling is a well-known tactic for weakening competitors or protecting market share. Because it can be effective in discouraging competition in the long term, the competition regulators in EU countries take seriously complaints that such practices are anti-competitive.

Recently, a Danish case on this topic was referred to the European Court of Justice (ECJ). It concerned the pricing of services at a cost that was below the average total cost of supplying them but above the incremental cost (‘marginal cost’ in economic parlance).

The ECJ ruled that such pricing practices are not necessarily unacceptable – it depends on whether the policy lacks objective justification and produces an effect which is likely to be to the detriment of competition and the interests of consumers.

The ruling will come as a relief to those who operate pricing policies which favour certain customers or markets over others by selling at below average cost.