ICCC releases outcome on probe into CPL pricing

On 4th September 2018, the Independent Consumer and Competition Commission (ICCC) received a complaint from Central Dairy Limited that City Pharmacy Limited was selling 1L UHT Pauls Milk in Port Moresby below the landed costs.

Trading as Stop N Shop, it was alleged that the business was engaging in anti-competitive conduct.

The ICCC conducted market inquiries into the allegations to ascertain if CPL was pricing Pauls milk below landed costs and if this conduct breached relevant provisions of the Independent Consumer and Competition Commission 2002 (ICCC Act).

The ICCC obtained information which included pricing data for 1 litre UHT full cream dairy milk products from major retailers in Port Moresby. The ICCC assessed the complaint under Section 58 of the ICCC Act which prohibits a business entity from taking advantage of its market power for an anti-competitive purpose. In this case, the ICCC was investigating a possible predatory pricing issue under Section 58.

Predatory pricing is a pricing strategy in which a product or service is set at a very low price with the intention to achieve new customers or drive competitors out or to create barriers to entry for potential competitors.

Section 58 (2) of ICCC Act, states that: “A person that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:

  1. Restricting the entry of a person into that or any other market; or
  2. Preventing or deterring a person from engaging in competitive conduct in that or any other market; or
  3. Eliminating a person from that or any other market.”

Outcome of Investigation

The ICCC concluded from its investigations that CPL does not have substantial market power in the market for retail of milk in Port Moresby. It therefore followed that there could not be a finding of abuse of that market power for any of the anti-competitive purposes as set out in Section 58(2) of the ICCC Act. Below are the ICCC’s considerations in support of its conclusion:

  1. The ICCC has considered that the relevant market is the market for retail of milk in Port Moresby.
  2. Whilst it was noted that CPL is the major retailer of 1L dairy milk products in Port Moresby in terms of volume (because it has the most number of outlets in the area), it was considered, based on available information, that CPL does not have substantial market power in the relevant market.
  3. CPL is a retailer of dairy milk and other milk products. CPL sells both Ilimo Milk (a product of Central Dairy) and Pauls Milk besides other liquid and powdered milk products. The ICCC’s analysis concluded that in the circumstances of the relevant market, CPL lacked commercial incentives to engage in predatory pricing, in particular because it does not have relevant pricing power. CPL’s position in the relevant market is no different to other retailers. The ICCC also concluded that it would be detrimental to CPL if it were to remove competitive milk products from its shelves and not offer to consumers a variety of choice in milk products.
  4. The ICCC considers that a breach of the ICCC Act would be possible if CPL had an existing agreement with Pauls milk producer (based in New Zealand) to disadvantage Central Dairy (Ilimo milk), a new entrant in the market. However, no evidence was found that such an agreement existed during the course of the investigations. Even if there was any such arrangement, Central Dairy would still have the option of supplying via other retailers in the relevant Port Moresby market.
  5. While CPL sold the highest number of 1 litre dairy milk products from January to September 2018, there is no evidence of CPL having the ability or incentive to undertake predatory pricing against its retail competitors – RH Hypermarket, SVS, TST, Food World Boroko and Waterfront, JMart and other retailers – in the manner alleged. The ICCC confirmed that competitors sourced imported milk independently of CPL from overseas producers and importing companies. According to the ICCC’s analysis, for a predatory pricing allegation to hold, CPL would have priced all its brands of 1 litre dairy milk products, including Ilimo milk, below its landed price with the purpose of eliminating its retail competitors from the market. Pricing only one brand of dairy milk below the landed cost lacks sufficient grounds to prove predatory pricing.

The ICCC has therefore ceased investigation into the matter. However, it reserves the right to conduct further investigations into this matter should similar competition concerns arise in the future.

Press release