Productivity Commission encourages misleading and deceptive pricing

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Should the following be legal?  You wish to buy a product being sold by business. The business clearly tells you a price for that product. Because of the nature of the product you must consume it before you pay for it. When you go to pay for the product the price is changed. You are charged a price that is higher than the price you were told –  perhaps 10 or 15% higher. You can’t now refuse to pay because you have consumed the product. You must pay the  the higher price – the price which is higher than the price you are clearly told when you ordered the product.

Sounds like misleading and deceptive conduct? Yes!

So on what basis does the Productivity Commission recommend that this conduct be allowed? Not just allowed, but that the laws currently preventing this conduct be removed?

The Productivity Commission wishes to exempt restaurants from clear pricing rules. They wish to allow restaurants to hand customers a menu which has the wrong prices on it and allow those restaurants to charge you a higher price after you consume your meal. This is the consequence of the  surcharging the Productivity Commission wishes to make legal.

There appear to be three reasons behind the Productivity Commission’s decision:

1. The Productivity Commission believes that businesses should not bear their own costs when they choose to price discriminate between customers.

There is a small (less than $1000 – although the PC appears to use one data point!) cost to restaurants in terms of printing different menus so that customers are actually informed of the correct price. Of course this is only a cost if the restaurant chooses to charge different prices to different customers or on different days. (Note that the vast majority of retailers do not do this. Imagine the uproar if Coles or Woolworths started to surcharge on weekends!) So the Productivity Commission believes restaurants should be able to price discriminate between customers without having to bear the cost of telling the customers about this discrimination.

2. The clear pricing rules do not stop restaurants from potentially misleading customers on other charges, such as corkage.

The clear pricing rules do not cover other restaurant boondoggles such as corkage charges. The Productivity Commission clearly believes that two wrongs make a right. They appear to believe that if a restaurant can hide corkage charges in the fine print then got they should be allowed to hide all prices in the fine print.

3. Clear pricing for restaurant’s was not subject to cost benefit analysis.

The Productivity Commission notes that there was no cost benefit analysis done for restaurants before the laws requiring clear pricing were passed. The laws apply to all businesses. Does the Productivity Commission really think that the laws should be subject to a cost-benefit analysis on every category of business individually? This is absurd. Clear pricing helps markets work. They increase competition. And in the case of restaurants, as the PC notes, the cost is low.

Would the Productivity Commission’s recommendation help the restaurant industry? Probably not. The clear pricing rules were introduced so that the ACCC did not have to take businesses one-by-one through the courts for misleading and deceptive conduct. Exempting the restaurants from the clear pricing rules will simply subject them to the laws against misleading and deceptive conduct. And clearly misinforming consumers about prices is misleading and deceptive. So restaurants that go back to the old system will raise the potential for prosecution. If the Productivity Commission believes that this is a good outcome for customers or restaurants then they need to get out a bit more.

In summary the Productivity Commission recommendation is wrong and it is bad economics.

Finally – thanks to Francis for putting me on to this.

 

9 Responses to "Productivity Commission encourages misleading and deceptive pricing"
  1. So it costs $1000 to change the recipe of a single item on your menu (assuming the menu notes the main ingredients)? I don’t think so. I can’t even recall dining to a restaurant where they used anything other that an A4 computer printout menu from their back office printer (often in clipboards, sometimes laminated). That’s 10c a page.

    The AHA and others must have really sweet-talked the Commission. Why bother with a price on the menu anyway?

  2. Note that the vast majority of retailers do not do this. Imagine the uproar if Coles or Woolworths started to surcharge on weekends!

    Actually, why shouldn’t all businesses be able to opaquely price goods and services outside of 9am-5pm Monday to Friday (excluding public holidays) in the interests of removing a cost of doing business? This could easily extend to many other businesses neatly.

  3. Come off it, Stephen. Restaurants should be allowed to say there is a 15 per cent surcharge for meals served on Sundays or public holidays, rather than print completely new menus.

    This is one area the ACCC really got it wrong.

  4. Come off it, Judith! What font size does the restaurant need to state the surcharge in? On every page of the menu or one page only? Front or back page? How prominent? Do they need to draw it to the attention of the customer? Can it just be stated verbally or does it have to be printed? What if there are a number of additional charges in addition to the surcharge? Do they need to assist a customer work out the full price of a meal if the customer cannot do it themselves (hey – you tell me what $23.75 plus 15% is without a calculator!).

    The clear pricing laws were introduced by the Australian governments (not the ACCC). The alternative is for the courts to waste time (and create business uncertainty) trying to come up with answers to exactly these questions. These matters got to the courts because consumers were misled in the marketplace. The laws are a pro-market solution to avoid misleading and deceptive behaviour. And if that means restaurants have to be clear in pricing to their customers, good!

  5. Cameron Murray, you are going to a small subset of restaurants. Most restaurants I go to have nonstandard paper sizes for their menus, on fancy paper and some are even properly bound like little books (the Cumulus Inc drinks menu for example). The cost of making new menus would be substantial for these restaurants.

    However, I see Stephen’s point that the benefits to consumers may well outweigh the costs here.

  6. Stephen
    I am with Judith on this. There are many ways that consumers can understand pricing. Menus are one point. However, in addition there can be conventions, such as an understanding that there are surcharges on weekends (this understanding reinforced by an entry in the Menu).
    some dating advice – It isnt a priority to figure out 15% of $23.75.
    Also restaurant dining is not the sort of experience that requires a fine comparison of charges (cf phone plans). Dining involves highly differentiated services. You have already made the decision to eat at the restaurant once you have camped your backside on the chair. So although I endorse price clarity where is matters, I dont see the evil that is created here.

  7. @David: would that support the notion that GST need not be included in prices at restaurants? Creating exceptions to the rule make for a more complex system for all, so, if that be the case, what other industry sectors would be mandated to include GST in the price versus not?

  8. The additional cost that restaurants face on Sundays and/or public holidays is not unique to them. Furthermore, the actions they would have to make to satisfy clear pricing rules are not particularly costly either (at least no more than other retailers that also want to increase prices on Sundays and/or public holidays to mitigate their increased costs)… so why is there only an exemption for restaurants?

    …because restaurants are the only ones that generally engage in this practice!

    Clearly this policy was made to cut costs for businesses by justifying the status quo, rather than objectively looking at the costs & benefits.

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