Inside Australia’s price gouging problem

Sam Hawley: Living in Australia, we know there's a lack of competition. Two big supermarkets, two big airlines and just a few more banks and electricity providers. And we know because of that, well, we get ripped off. Now just how badly we're being treated has been exposed in a report by the former head of the competition watchdog, Alan Fels. Today, investigative journalist Adele Ferguson on how big companies trick us into paying more and how Mr Fels thinks we can stop them. I'm Sam Hawley on Gadigal Land in Sydney. This is ABC News Daily.

Adele, taking on the big supermarkets, it's not easy, that's for sure. But Alan Fels, he's pretty tough, isn't he? Tell me a bit about him because he's been around for a while now.

Adele Ferguson: He is, he's a formidable figure.

Alan Fels: Good afternoon. The greatest concern of Australians today is the cost of living. My conclusion is that Australians are paying prices that are too high too often.

Adele Ferguson: He's really a global figure in competition policy. He ran the Australian Competition and Consumer Commission for more than 20 years.

Sam Hawley: And he's led this inquiry into price gouging and he's released a big, long report. And a big part of that report, of course, is on supermarkets. But he's also looked at other sectors, hasn't he?

Adele Ferguson: Yeah, he has. And he was saying what appealed to him about doing a report for the ACTU was what is going on with inflation outside of the Ukraine war and different things like that. What other things are going on in Australia? And that's what really appealed to him because he was saying inflation is discussed all the time, but not much is discussed on the prices charged, the processes in setting prices, profits and contribution to inflation. And so that's what this report's all about.

Alan Fels: The cause is weak and ineffective competition in too many sectors of the economy.

Adele Ferguson: And he wanted to speak to ordinary Australians instead of the usual suspects who lodged submissions. And he got some really good intel. And, you know, people are writing in saying that, you know, in January, if you look at Woolies in Mittagong and Boweral, on the same day, an hour in between, broccoli prices were $4.70 at one store and $7.90 at another store.

Sam Hawley: Oh my gosh, that's incredible.

Adele Ferguson: How does that work? Is that price gouging? How do they justify that?

Alan Fels: A significant part of the cost of living crisis has been caused by companies in uncompetitive markets, taking advantage of their market power and relying on gaps in government policy to squeeze consumers and often suppliers to breaking point. Reform to curb this is urgent.

Sam Hawley: Just remind me, Adele, what is price gouging?

Adele Ferguson: Price gouging is when businesses take advantage of their market power and they set prices well above the levels that would occur if there was competition. So if you had lots and lots of players, would they be able to get away with this? But when you have few players, and particularly in regional areas, when you may just have one supermarket, they really can call the tune on prices. Price gouging is not illegal at all. It only becomes illegal if they're colluding.

Sam Hawley: Okay, so let's have a look then at these tactics, you know, at that example of broccoli, you know, how does that happen? Why would that happen? You know, it's the tricks, the tactics, I suppose, that the supermarkets use, not just supermarkets, all big companies really. But tell me about some of these tricks, I suppose, that are used by these big companies.

Adele Ferguson: Yeah, so there's the loyalty tax with the banks or insurance companies where they may offer lower prices to hook people in, you know, like you can have for 12 months, you can have zero interest on your credit card. And what happens is they don't realise that, you know, when that year is over, different prices get introduced. And before they know it, they're locked into a price that they didn't know they were paying. Or there's a thing called drip pricing, where, you know, in the ads it says this is the price. But then when you go to pay for it, you find that, you know, with an airline ticket, for example, there may be a cheap airline ticket. And then when you say, yes, I'm going to buy it, then you find out that you have to pay additional prices for, you know, baggage or where you're sitting, that sort of thing. So those sort of things are deceptive in a way because people are getting hooked into buying something when they believe it's a price that it isn't really.

Sam Hawley: I noted that one submission to the inquiry said that Coles had hiked the price of a certain brand of coffee from $8 to $12.70. And then a couple of weeks later, it cut the price to $10.70, so still above the $8, but then it tagged it that it was on sale.

Adele Ferguson: Yes, that's right. And there's been a lot of questions about that, you know, the discounting tricks, where the supermarkets are advertising products on sale when they're actually at normal or high prices. The ACCC is looking into that. And, you know, the supermarkets have their reasons for doing it. There can be many complex reasons why they say that it's justified. But, you know, you really do need to dig deeper and find out, are these tricks that they're doing just to dupe customers into paying more?

Sam Hawley: Yeah, and before Christmas, I think, Adele, we spoke about lamb and the cost of lamb. Just tell me about that because that's really intriguing, isn't it?

Adele Ferguson: Yeah, so another case was, you know, cattle and lamb prices last year fell 70 per cent. People started to complain, saying, you know, all these lamb and cattle prices are so low. Why is it when we go into the supermarkets that the prices of meat haven't really budged? So there became a lot of publicity about that. So then Woolworths came out and said, we're going to offer a Christmas present to our loyal customers and we're going to lower the price of lamb. And what Alan Fels is saying in this inquiry is, you know, if this was a competitive market, you wouldn't be using it as a marketing ploy. You'd actually just be lowering your prices because all those other competitors are lowering their prices.

Alan Fels: I've never seen a really serious price war between the big two. In the UK, where you've got four or five big people, you can see real competition at work and much lower profit margins. And people say, well, Australia's smaller. Fine. Australia's smaller, less competitive. But it doesn't warrant having higher prices.

Sam Hawley: So tell me, Adele, what do the supermarkets say about all of this? Presumably they deny they're ripping off customers.

Adele Ferguson: They absolutely deny it. They say that they, you know, it's a lot more complicated in price setting and, you know, there's middlemen involved and you have to make sure that the farmers are getting a good deal.

Sam Hawley: The Woolworths CEO, Brad Banducci, he spoke to the ABC 730 program last month and, you know, he was making the point that actually the supermarkets do care about cost of living pressures, but there's also a lot of pressures on the supermarkets and their costs have been rising too.

Brad Banducci: We care about cost of living pressure for our customers, can I just say. And we know that they've got the pressure and we agree with the need to do whatever we can to help our customers with the cost of living pressure. But what we're always trying to balance is do the right thing for the consumer, pay a fair price to the supplier, in particular if it's an Australian farmer, make sure we...

Sam Hawley: So, Adele, this, as we mentioned, it wasn't just about supermarkets and you mentioned aviation. What else did it find on aviation?

Adele Ferguson: Yeah, so it looked at aviation and it found, you know, there's quite a lot of issues there, you know, just in terms of there's a thing called slot hoarding, which is a tactic that Qantas has been accused of booking and then cancelling flights to prevent competition from other airlines. Because what happens is the airports have slots and they're really sought after. And so if you don't have a slot to put your plane to load people on, then you can't fly the plane. And so if Qantas is basically land banking these slots or slot hoarding, then other competitors can't fly them. And so the ACCC again is looking into this.

Sam Hawley: I think if you've flown recently, you've probably had a flight cancelled. I certainly have. OK, so let's just step back a moment, Adele. The way companies charge us, supermarkets and airlines and others, it fuels inflation and that makes it even worse for us, doesn't it? Because that means interest rates go up.

Adele Ferguson: Yeah, that's right. And they actually use the example where the government had intervened and made things worse. So you had that with Qatar Airlines, which wanted to actually start flying more frequently in Australia and the government said no. And so what Alan Fels is saying in this report is that that could have brought down prices up to 40 per cent. The government blocked the proposal and this was acting in the interest of Qantas. But not just that, it was actually contributed to inflation. And at that time, the Reserve Bank was putting up interest rates. So there's a really profound knock-on effect of this sort of price gouging.

Sam Hawley: So what are we going to do about it? What's going to come out of this report or what comes next and how do we change things? I think that's what people really want to know.

Adele Ferguson: Yeah, so what Professor Fels is suggesting, he's got lots of recommendations. And the key thing is he's saying there is an absolute competition policy gap. And he says so governments need to act on these high prices. And a way to do that is introduce to Competition and Consumer Act a clause that makes it an offence to charge excessive prices as they do in Europe. They've already said that the national competition policy, the government has said that they're going to reintroduce that and Treasury will be responsible for it. And that will look at competition and prices. But Professor Fels says they should go further and actually establish a Competition and Prices Commission.

Alan Fels: Not to regulate them, but to identify their causes, remove wherever possible their anti-competitive and other causes and other harms.

Adele Ferguson: Right now, the ACCC has to be told by the government. They can't just do it themselves. The government has to say, hey, ACCC, can you look at supermarkets? So if you had this sort of commission, it would be able to help the ACCC be able to work hand in glove with it. And the ACCC could continue with its enforcement role.

Sam Hawley: So Adele, just in the meantime, tell me, how do we know when we're being price gouged? And how can we avoid the trick? How can we pay the best rate for the broccoli? How do we get around this?

Adele Ferguson: I think what we have to do is really keep our eyes peeled on this sort of thing and call it out. You know, so go to Woolworths and say, why is it just down, you know, in another suburb, you're charging X dollars more? How do you justify that? And write to them. And the media, no, because it's not on. And the only way to effect change is by naming and shaming and calling it out. And then that's when the government will start making changes as well.