Digital pricing platforms and extensive customer data collection are enabling large-scale price discrimination and “sophisticated profit maximising”, an extensive investigation has found in recommending new divestiture laws and prohibitions on anti-competitive mergers.

The Inquiry Into Price Gouging and Unfair Pricing Practices report – which was commissioned by the ACTU and authored by economist and inaugural ACCC chair Allan Fels – identified a range of pricing practices that “might be accepted in very competitive markets” but, in the context of the “quite widespread lack of competition” in many Australian markets, “are unduly exploitative of consumers.”

These include the imposition of loyalty taxes, “often badly run” loyalty schemes, confusion pricing, ‘excuse-flation’ and drip pricing – as well as data-driven practices including price discrimination (which charges certain customers more and others less based on their means) and algorithmic pricing (which sets prices automatically based on competitors’ pricing).

Also flagged as problematic was the asymmetric “rockets and feathers” pricing seen in industries such as petrol and energy – in which prices go up quickly in response to cost increases but fall far more slowly when input costs decline.

Such trends may not be new, but Fels said they are being accelerated and optimised to maximise profits thanks to “a move away from traditional, human-led pricing decisions to those dominated by algorithms…. growing reliance on the internet and digital technologies has broadened the scope of digitalised markets, encompassing everything from stock trading to online retail and services.”

Whereas humans would have been overseeing price changes in the past, the increasingly common practice of deferring pricing decisions to algorithms has steadily increased prices across the board – fuelling inflation broadly and particularly in “very concentrated” industries such as the electricity sector, where Fels found that existing bidding-based market systems are no longer “fit for purpose” and “very substantial price discrimination” needs investigation by regulators.

The report also calls out Australia’s outdated parallel import restrictions – which are keeping car prices artificially high by blocking the importation of second-hand hybrid and electric vehicles (EVs) that are on average, $9025 cheaper in New Zealand because that country doesn’t have similar restrictions – as well as rampant price gouging in sectors including banking, airlines, airports, childcare and education, and more.

“Both shaming and price regulation should be considered to rectify overcharging,” the report – which includes 35 recommendations spanning a range of industry sectors and business practices – advises in warning that the “heavily out resourced” ACCC should be funded to crack down on the “very profitable and prevalent” cartels in many industries.

“Competition is far less than it should be in Australia,” Fels concludes, noting that “even extreme price gouging is not unlawful in Australia” – an issue he recommends be addressed by introducing EU-styled laws that make it an offence to charge excessive prices – and advocating for stronger competition laws, a new divestiture law that would allow the breakup of big businesses found to have “seriously” breached competition law.

Digital giants are joining the profit rush

The report is an indictment of the steady maturation of retail and online pricing tools – driven by the accumulation of personal and purchasing details through three decades of big data retail strategies, best summed up by the oft-cited beer and nappies paradigm – which have removed human judgement from pricing decisions that raise costs without regard to consumers’ wellbeing or ability to pay.

Yet for all his focus on conventional industries’ use of algorithmic pricing, Fels also warned that online giants have found their own ways to exploit consumers, with “online marketing and digital products seem particularly fertile grounds for firms to offer deliberately complex and misleading contract terms.”

“Evidence is mounting,” he said, that “deliberately complex and misleading” practices – such as hidden subscription commitments and other ‘dark patterns’ – “have added significantly to the current cost-of-living crisis facing Australian households.”

Additional reforms should broaden the scope of restrictions on confusion marketing, Fels advised, “and ensure that consumers are able to make informed comparisons and choices.”

Noting that a “wave of takeovers of newly emergent potential competitors by digital platforms” by digital platforms – known as ‘killer acquisitions’ – seem designed primarily to crush competitors before they pose a threat, Fels also recommended the introduction of a legal prohibition on mergers that “simply add to existing market power.”

ACTU secretary Sally McManus welcomed the report and said that “it has found what working people suspected. Some big businesses have added to inflation and have too much power over customers, workers, and supply chains.”

McManus called the “gaming” of the wholesale energy market “particularly concerning”, noting that energy generation “makes up 30 per cent of our household bills and Fels asserts there is gouging in the system which is causing workers to pay too much.”

Greens Economic Justice spokesperson Senator Nick McKim called the findings “a testament to the urgent need for reform within our supermarket industry and beyond.”

“There is no doubt that corporate profiteering is occurring in Australia,” McKim said, adding that the report “confirms what many Australians have long suspected – that excessive corporate profits and monopolistic practices are contributing significantly to the cost of living crisis and undermining our social fabric.”