Pursuant to Ordinance 104/22, issued in March 2022, the Brazilian antitrust agency (Cade), updated the Predatory Pricing Analysis Guidelines, published in 2002. Predatory pricing – often mistaken for dumping – is the conduct to sell goods or provide services unjustifiably below the cost price.

Cade has investigated several cases on predatory pricing without, however, convicting any company since the entry into force of Law No. 8.884/94, which preceded the current Brazilian Antitrust Law (Law No. 12.529/11).

Carrying out a predatory pricing investigation is an extremely complex task because simply selling below cost price does not constitute an antitrust violation. According to Cade's precedents, proof that there was a reduction of cost prices for a certain period is insufficient to conclude that there was unlawful predatory pricing. It is necessary to prove that the company charged prices below the average variable cost, aiming to eliminate its competitors to increase the referred prices at a later stage. Then, the company would be able to recover its initial losses in a much less competitive market and make profits similar to those of a monopolist.

The ordinance aims to guide the economic analysis and reduce Cade’s investigation costs. According to the guidelines, Cade shall observe the following steps, successively:

• definition of the relevant market;
• structure of such market and entry conditions;
• supply conditions of the investigated company and its production capacity;
• that company's financial capability to withstand short-term losses, by its own or through third parties; and
• comparison between price and cost.

In the last stage, the most complex of all, the guidelines suggest that the production costs – total average cost (total cost divided by the number of goods produced) and average variable cost (total variable cost divided by the number of goods produced) – be analyzed.

When the price is equal to or higher than the average total cost of production, the practice shall not be deemed as predatory pricing. If the price is between the total average cost and the average variable cost, it is possible that the company practiced predatory pricing. In this case, Cade analyzes the demand and supply conditions (for example, whether there was a sudden demand contraction in the industry or excess capacity) that could justify the practice. After assessing all the steps, if price is lower than the average variable cost, Cade understands that there was unlawful predatory pricing.

In practice, the guidelines of the new ordinance are not expected to necessarily promote convictions for predatory prices because the average variable cost analysis is difficult to apply. In Brazil and abroad, there are even discussions on the use of other methodologies to identify the existence of this type of antitrust violation. For instance, the analysis of structural preconditions that may suggest a rational predatory conduct and the use of concepts of game theory, with the analysis of asymmetric information as a central factor for the discussion of economic rationality.