The US should adopt clear pricing laws – and Australia should extend ours.

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The Federal Trade Commission has been discussing clear pricing rules for the United States. See for example here.

These rules are good idea. In 2010,  Australia adopted clear pricing rules as part of the Australian Consumer Law. (The relevant law is below). Despite some initial complaining from business, these rules appear to have created little regulatory burden but have improved the ability for consumers to compare competitive price offerings.

For example, automotive dealers now advertise drive away prices rather than advertising a price which excludes numerous fees and charges. Restaurants now make it clear if they charge different prices on weekends than on weekdays, rather than hiding a 10 or 15% surcharge in the fine print on the menu. I don’t think there has been formal empirical work on these reforms that they appear to have been successful.

So my advice for the US FTC – go for it! Clear pricing rules help consumers and make markets work better.

That said, Australia can go further. Mobile phone  advertising, for example, is still allowed in ‘funny money’ terms. Phone companies advertise in terms of “dollars of free calls” without making it clear what those dollars translate to in terms of minutes. As a result, it is difficult if not impossible to compare mobile contracts between different providers. It is as if they all provide a price in a different currency without giving you a clear exchange rate.

Nick Stace from Choice comments on this in the Fairfax press today:

”When it comes to mobile phone plans, we call it a confuse-opoly,” Nick Stace says. ”Often phone companies talk in terms of units, not minutes. They’ll say, ‘You get 300 free units.’ But what is a unit? How on earth can an individual make the right decision?”

So my advice to Australian politicians – how about we fix some anomalies in our own ‘clear pricing’ laws, and the mobile phone sector is a good place to start.

Australia’s clear pricing laws in s.48 of the Australian Consumer Law:

(1) A corporation must not, in trade or commerce . . . make a representation with respect to an amount that, if paid, would constitute a part of the consideration for the supply of the goods or services unless the corporation also:

(c) specifies, in a prominent way and as a single figure, the single price for the goods or services; . . .

(5) For the purposes of subsection (1), the corporation is taken not to have specified a single price for the goods or services in a prominent way unless the single price is at least as prominent as the most prominent of the parts of the consideration for the supply.

2 Responses to "The US should adopt clear pricing laws – and Australia should extend ours."
  1. This is a thorny problem: There are a number of variables when trying to compare phone rates:
    1) Price per Min
    2) Flagfall
    3) Per Sec, Per 30 sec or Per Min billing (which makes an enormous difference)
    4) “Exchange Rate” – Real dollars for credit dollars

    The final wrinkle is that the “exchange rate” drops to 1:1 once your cap balance is exceeded.
    It would be possible to develop a “comparison rate” formula as we do with Interest rates. Like that problem, it wouldn’t necessarily capture all the complexities, but it would be a start.
    Even better, you could amend the Act to require phone companies to bill calls per second. That is a not inconsiderable regulatory intrusion (After all, we don’t require Pizza Hut to sell their pizza by the slice), but I think it could be justified under s.48, or more likely through the creation of an Industry code under 51AE

    I think everybody agrees it is well overdue

  2. You’d better enjoy your clear, non-deceptive menus while they last, Stephen.

    The Productivity Commission’s 2010 Annual Review of Regulatory Burdens on Business recommended (Rec 3.3) that the Clarity In Pricing provisions of the CCA be repealed insofar as they apply to the hospitality industry.

    http://www.pc.gov.au/projects/study/regulatory-burdens/business-consumer-services/report

    Why the same body that recommend the Australian Consumer Law be established to provide a geography-, technology- and product-neutral system of consumer law for the nation should now cave to the vested interests of a sector of the community singularly uninterested in being honest to its customers, I don’t know. Particularly given the ACCC has been so successful enforcing the ban with respect to restaurant, which surely goes to show that consumers do lose out from component pricing.

    But as bad as that is, the Commonwealth Government actually agreed!

    http://www.finance.gov.au/publications/response-to-pc-bcs/

    However, the Feds can’t amend the Australian Consumer Law without securing the agreement of their state and territory counterparts. So, please, everyone, write to your local consumer affairs minister and urge her or him to vote NO! on fiddling with Clarity In Pricing!

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