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.