Fels

• Fels wants to give the Australian Competition and Consumer Commission more power to investigate and more power to prohibit mergers.
• But it helps to know how they try to trick us, and how technology has enabled them to get better at it.

1. Asymmetric price movements

• Otherwise known as Rocket and Feather, this is where businesses push up prices quickly when costs rise, but cut them slowly or late after costs fall.
• It seems to happen for petrol and mortgage rates, and the Fels inquiry was presented with evidence suggesting it happens in supermarkets.

2. Punishment for loyal customers

• A loyalty tax is what happens when a business imposes higher charges on customers who have been with it for a long time, on the assumption that they won’t move.
• It’s often done by offering discounts or new products to new customers and leaving existing customers on old or discontinued products.
• The plans look good at first, and then less good as providers bank on customers not making the effort to shop around.

3. Loyalty schemes that provide little value

• Fels says loyalty schemes can be a “low-cost means of retaining and exploiting consumers by providing them with low-value rewards of dubious benefit”.
• Their purpose is to lock in (or at least bias) customers to choices already made.

4. Drip pricing that hides true costs

• They often offer initially attractive base fares, but then add charges for baggage, seat selection, in-flight meals and other extras.
• Read more:
  Junk fees and drip pricing: underhanded tactics we hate yet still fall for

5. Confusion pricing

Related to drip pricing is confusion pricing where a provider offers a range of plans, discounts and fees so complex they are overwhelming. Financial products like insurance have convoluted fee structures, as do electricity providers. Supermarkets do it by bombarding shoppers with “specials” and “sales”. When prices change frequently and without notice, it adds to the confusion.

6. Algorithmic pricing

• Algorithmic pricing is the practice of using algorithms to set prices automatically taking into account competitor responses, which is something akin to computers talking to each other.
• It can act even more this way when multiple competitors use the same third-party pricing algorithm, effectively allowing a single company to influence prices.

7. Price discrimination

• Price discrimination involves charging different customers different prices
  for the same product, setting each price in accordance with how much each customer is prepared to pay.
• While it can make prices lower for some customers, it can make prices much more expensive to customers in a hurry or in urgent need of something.

8. Excuse-flation

• Excuse-flation is where general inflation provides “cover” for businesses to raise prices without
  justification, blaming nothing other than general inflation.
• It means that in times of general high inflation businesses can increase their prices even if their costs haven’t increased by as much.

A political solution is needed

• We will need political help.
• Only then can we create a marketplace where ethics and competition align, ensuring both business prosperity and consumer wellbeing.

David Tuffley is affiliated with the Australian Computer Society (Member).