Why $10 million price gouging laws may not protect customers

Australia’s world-first price gouging laws may struggle to prevent customers being ripped off at the checkout by Australia’s major supermarkets, an economist has warned.

Under new laws set to come into effect on Wednesday, Coles and Woolworths could face fines of up to $10 million if they are found to charge outside what is deemed a “reasonable margin” for products on its shelves.

The laws only target “very large retailers” with more than $30 billion in revenue; Coles and Woolworths are the only supermarkets that meet this threshold.

However, hopes it will make a significant dent in price gouging and protect customers in a cost-of-living crisis may be mistaken.

“Shoppers don’t compare prices to a retailer’s costs, they compare them to what they remember paying last time,” Associate Professor Meg Elkins from RMIT University said.

“The law’s test is cost-based, asking whether the price is excessive relative to the cost of supply.

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“But the public’s test is memory-based, asking whether this price is higher than expected.”

She argues customers are not aware of how much it costs to supply the supermarkets, so the actual reduction in prices that could be made from the law changes may not actually be substantial or noticeable to regular shoppers.

She said the vagueness of the law in not clarifying what excessive pricing means, and she fears it could be exploited.

“A retailer can clear the legal bar easily, for entirely legitimate reasons like a bad harvest or rising freight costs, and it will still feel like gouging at the checkout,” Elkins warned.

Speaking last week, Assistant Competition Minister Andrew Leigh claimed it was actually a good move for consumers not to specifically outline a figure that would be deemed “excessive” overcharging.

“We deliberately haven’t put numbers around this. To do that would risk the system being gained and a worse deal for consumers,” he said.

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The Australian Competition and Consumer Commission (ACCC) said it conducts regular checks on both supermarkets to ensure both supermarkets are abiding by the laws.

Coles and Woolworths have both been taken to court by the ACCC over allegations of misleading practices.

Last month, the former was found guilty of misleading shoppers with illusory discounts and disguising price hikes within discounts under its “down down” price campaign.

The Woolworths case remains before the courts.

Elkins said despite the potential loopholes in the new laws, they would still put pressure on both supermarkets to make sure customers aren’t on the wrong end of poor treatment.

“The biggest impact on supermarkets may be psychological; making them feel watched, rather [than] actually catching them out legally,” she said.