Labor’s first promise of the election campaign is to outlaw supermarket price gouging.
The political intent is obvious, given voter anger over the cost of living. Prime Minister Anthony Albanese was unsubtle in his retail appeal on Sunday morning, accusing supermarkets of “taking the piss” out of Australians.
But the details of the announcement — in short, that a taskforce will consider options for a new law to ban unfair pricing practices — leave a lot unanswered. What exactly is price gouging, and what would it actually mean to make it illegal?
What rules already exist about price setting?
Australian companies are already subject to some rules about price setting.
There are laws against companies who are supposed to be competitors instead colluding to “fix” prices or otherwise seeking a mutual advantage. This is called “cartel” behaviour, and it is relevant in the supermarket sector with its two dominant players.
Then there are laws to stop companies from acting in “predatory” ways to eliminate or harm their competitors, for example by holding prices artificially low for an extended period to undercut a rival.
And finally, there are laws against misleading consumers about prices, including making false claims about the reason for a price hike.
But there is no law to stop a company from raising prices simply to make a profit, and there is no law that says they can’t take advantage of market power they have.
The consumer watchdog, the Australian Competition and Consumer Commission (ACCC), has some power to promote competition: for example its newly bolstered powers to push back against large companies acquiring smaller competitors.
But beyond that, to put it in terms similar to the PM, it is legal for companies to take the proverbial when they set prices.
As the ACCC puts it:
“People may consider the prices a business charges to be too high. This is sometimes referred to as ‘price gouging’ or ‘excessive pricing’ …
“[But] While it’s often seen as unfair, prices or price rises that people may think are too high are not illegal on their own.”
How would Labor’s proposal work?
Labor’s proposal is for the ACCC, Treasury and market experts to form a taskforce and work up a model for a price gouging law, to be enacted by the end of the year.
The first challenge for that taskforce will be to define price gouging, which is not straightforward — what is the line between “legitimate” and “unfair” profit-making?
The PM swerved that question on the ABC’s Insiders on Sunday, saying only that “people know when they’re being ripped off”.
But there are precedents for the government to build on. Similar laws exist in the EU, the UK and in 37 US states.
And Australia has gone down this path twice before in specific circumstances — once, during the Howard government, to prevent price gouging when the GST was introduced, and then during the Morrison government to prevent gouging on face masks.
The Morrison government intervened after face masks were sold at large mark-ups by some retailers during the pandemic. (Reddit)
In general, the test for courts to determine in price gouging laws is whether a price bears no relationship to economic fundamentals — for instance, a price hike that has nothing to do with a spike in supply costs.
If a court could establish that, Labor says “heavy fines” would apply. But as is the case with other competition laws, which senior Labor sources suggested would be the starting point for this new law, court action would be a last resort.
Before contemplating a lengthy legal process, the ACCC would have the power to issue a stop notice to a supermarket it believed was price gouging, asking them to stop, and could also issue infringement notices (effectively small fines).
Are supermarkets actually price gouging?
But even when it comes to lower-level actions such as a stop request or an infringement notice, the process of gathering evidence to establish price gouging would not be straightforward — which is why these laws are rarely used where they exist overseas.
For example, the recent ACCC supermarkets report, for which the regulator had access to detailed information about their price-setting behaviour, did not land on definitive evidence that Coles and Woolworths had acted unfairly.
It did find that their profit margins increased during the recent inflation spike, and found they used their significant market power to their advantage.
But it swerved the question of “gouging” — a word which did not appear once in the 441-page report — and broadly resisted characterising price-setting as “unfair”.
