Peter Martin thinks that the one thing we might see from the ACCC’s grocery inquiry is unit pricing for groceries. He points to the fact that often larger volumes of food products actually sell for more per unit than smaller ones. Buying a larger one would be a bad idea as you could just buy a requisite number of smaller ones and be better off.
OK, so consumers might prefer that information. Even if you can calculate per unit volumes not having to do so would be a time saver. (Interestingly, Woolworth’s online offering does give you unit pricing). So why don’t the supermarkets offer them? I mean, no one even tries as a point of differentiation.
When you try to think of reasonable explanations — integer constraints, packing costs or what have you — it only increases the rationale for some transparency so that consumers feel the firm’s cost pain and accommodate it.
Thus, we are left with the strategic: put simply, it looks like an innumeracy tax. Those who can’t or can’t be bothered calculating may end up paying more than those who can. But even that doesn’t get us the whole way there as an explanation: those very same people who can’t also have to be the people who are relatively price insensitive. Now, the notion that the rich can’t be bothered is attractive but given how widespread this practice is, I suspect those who can’t, can’t also easily check between supermarkets as to whether they are paying more for their whole basket of groceries.
So what happens if we mandate unit pricing? Let’s assume that eliminates the innumeracy tax. The problem is that supermarkets will no long have a means of targetting price sensitive customers and sorting them from the insensitive ones. In a relatively competitive market, prices on some products might rise. And sorting out the average seems tricky (although not impossible with a formal model — something I don’t have time to do here).
In any case, it is not entirely clear whether a policy to mandate unit pricing would improve matters; although ideologically, I am in favour of more transparency if it can be cheaply done; i.e., assuming supermarkets themselves can calculate unit prices! Of course, after FuelWatch, no such policy could surely be introduced without a clear policy trial or experiment and some careful econometric analysis. After a week of Parliamentary debate on statistical significance, our political standards on these things appear to have shifted.