Wednesday, 19 August 2009
Matters of Public Interest
Geographic Price Discrimination
I thank Senator Ludlam for being gracious enough to give up some of his time for me to speak today. I rise today to speak about the issue of geographic price discrimination. This is an issue of growing importance to consumers and small businesses. Geographic price discrimination occurs where a big business charges a different price for the same product at its different retail locations in the same geographic area. We see this practice in groceries and petrol. It is more obvious in petrol because the same oil company or major supermarket chain may sell the same petrol at different prices at their different service stations just kilometres apart. Such price differences are annoying to consumers. Consumers feel ripped-off if they buy at one price to find it cheaper at another outlet run by the same company further down the road. Why are there differences in petrol prices?
While the oil companies or supermarket chains are quick to tell us that they are responding to local competition and dropping their price at some locations to meet the local competition, they are not so quick to tell us that they raise their prices in those other suburbs where the local competition is weak or non-existent to compensate. Of course, consumers benefit where there is independent competition to keep prices down; but, conversely, consumers suffer where the lack of competition keeps prices high.
Why don’t companies charge the same price for the same product at all their retail outlets? Aldi have a single pricing policy, and they should be commended for that. A single pricing policy means that all consumers get the best possible price that the company can deliver. Discriminatory pricing on a geographic level means that some consumers pay a lower price and others pay a higher price. If the company’s pricing model allows them to charge a lower price in one location, then surely the company’s pricing model should allow the company to offer the same low price elsewhere—unless, of course, geographic price discrimination is used as a tactic to ambush independents and drive them out of business. If the lower prices are being used to drive out the independent, that would be a source of concern because we know that prices will go up once that independent is driven out of business.
We need to put an end to geographic price discrimination. The practice is damaging to both competition and consumers as the practice can be used to drive independents out of the market. The practice is not illegal in Australia, and this is a large gap in our competition laws. It is a matter that needs our urgent attention. It is a matter on which I have sought advice from Associate Professor Frank Zumbo, a leading competition and consumer law expert from the University of New South Wales. It is also an issue that Senator Joyce and I are jointly pursuing.
We need to support those independent small retailers being targeted by this type of price discrimination. We need to support small petrol retailers like Marie El Khoury in the Sydney suburb of Blacktown. Senator Joyce and I have gone out to Blacktown on several occasions to talk to Ms El Khoury and help pump petrol for her loyal customers. Ms El Khoury is a wonderful example of the spirit and efficiency of small businesses. Ms El Khoury is an excellent petrol retailer and is helping to keep prices down in Blacktown. Her efforts, however, currently benefit only the people of Blacktown. She can only keep prices low around her Blacktown service stations.
Sadly, motorists in many other parts of Sydney, as well as around the country, do not get those lower prices because independents either have left the market or have been driven out. Once those independents have left the market, petrol prices have gone up. That is why we need to keep independents in the market and also to ensure that more enter the market—and it is not just the petrol market; it is the grocery market and the liquor market and all those other markets where the major supermarket chains and their related companies have come to dominate the market.
I believe the major supermarket chains and the oil companies must bring an end to geographic price discrimination. They must adopt a single pricing policy in the same way that Aldi has, for the benefit of all their customers. The major supermarket chains and the oil companies must give their customers the benefit of guaranteed lowest prices in all their retail outlets in the same geographic area and, if they do not, we need some urgent legislative reform.