Should price discrimination be illegal?

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That appears to be the inference in the last part of this report on the ACCC’s conclusions about milk pricing.

However, Australia does not have a law against discriminatory pricing and competition law experts say this makes it difficult for the ACCC to take any action on the practice of milk processors selling milk cheaper to the two big supermarkets than to smaller retailers.

A bit of history. Our competition laws used to have s.49 that made it illegal to price discriminate.

49. (1) A corporation shall not, in trade or commerce, discriminate between purchasers of goods of like grade and quality in relation to … (a) the prices charged for the goods;

One problem with this law is that it was impractical. The legitimate exceptions started straight away.

Sub-section (1) does not apply in relation to a discrimination if (a) the discrimination makes only reasonable allowance for differences in the cost or likely cost of manufacture, distribution, sale or delivery resulting from the differing places to which, methods by which or quantities in which the goods are supplied to the purchasers; or (b) the discrimination is constituted by the doing of an act in good faith to meet a price or benefit offered by a competitor of the supplier.

These exceptions make perfect sense. If it is cheaper to supplier one customer than another customer, it is generally undesirable to require that the two customers are required to be set the same price. And if I can’t lower my price to match the competition for particular customers, that mutes competition.

Economically, broad laws against price discrimination make little sense as they may make customers worse off. For example, it may lead to some customers simply not being served.

And a final point – the law, as I understand it, was never successfully prosecuted. It has since been removed from our Competition and Consumer Act.

So should price discrimination be illegal? No.

 

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