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These are the 'exploitative' tactics businesses are using to charge you more

The damning report into price gouging yesterday laid bare a truth many Australians are all too familiar with: households across the country have been hit by higher prices at the same time some businesses are enjoying bumper profits.
The inquiry by former Australian Competition and Consumer Commission (ACCC) chair Allan Fels detailed eight "exploitative business pricing practices" used by companies to take advantage of a lack of competition in Australia and increase their fees.
This is what those practices are – and how exactly they lead to you being overcharged.
Toilet paper in a shopping trolley in a Woolworths supermarket in Sydney.
The inquiry by former ACCC chair Allan Fels looked at a range of industries, including supermarkets. (The Sydney Morning Herald)


With inflation rising, many companies found themselves with a convenient excuse to hike prices, even if they had no reason to beyond wanting to inflate their profits, according to Fels.
He added this made it difficult for consumers to know whether a price rise was legitimate – that is, if it was due to a business's own costs increasing – or not.

Drip pricing

Ever seen a product advertised for what seems like a bargain, only to find it's substantially higher once you reach the checkout thanks to hidden fees and charges?
That's drip pricing, which Fels said was particularly common practice by airlines, accommodation and entertainment companies, telcos and credit card providers, as well as for medical procedures.
Debit cards from the big four banks.
Drip pricing is used by credit card providers to get more money from their customers. (Dominic Lorrimer)
While some of it is illegal, much of it is acceptable under Australian law, and it may be about to get worse.
"Technology, the manipulation of big data and developing analytics will refine some of the techniques, especially with regard to online purchases," Fels wrote.
"The future dystopia is market forces increasingly biasing outcomes towards products and services that prey on human weaknesses, our propensity to make irrational decisions depending on the sales pitch and apparent features."

Rockets and feathers pricing

Rockets rise quickly, feathers fall slowly. The same goes for prices in cases sometimes referred to as asymmetric pricing.
"It is very profitable to delay price falls," Fels told the National Press Club yesterday, pointing to petrol as a well-known example, as well as recent meat prices.
"A recent example concerned meat prices when prices paid to farmers for lamb fell but retail prices did not, at least until there was publicity including from this inquiry about the delay," he wrote.
Fels pointed to lamb prices as a recent exmaple of rockets and feathers pricing. (Nine)

Loyalty taxes

A loyalty tax is the tactic of offering new customers a low price before significantly hiking fees in the following years or months.
Fels said this often happens in industries where consumers find it difficult to switch providers, pointing particularly to insurance as an example, and many people don't know they've been hit by such a big price hike.
"In order to attract customers, premiums are set low for the first year," Fels wrote.
"Then in subsequent years, prices are increased sharply.
"Customers were not told by how much prices had risen from the previous year, nor were they even told what price or premium they paid the year before when their rate renewal notice arrived.
"Consequently, a majority of customers were unaware of the magnitude and severity of the rises."

Loyalty schemes

Keeping with the theme of loyalty, the schemes many customers sign up for in search of better value actually don't offer much benefit, according to Fels, who described them as "low-cost means of retaining and exploiting consumers by providing them with low-value rewards of dubious benefit".
He was particularly scathing of frequent flyer programs, and called on the ACCC to run an ongoing analysis of loyalty schemes. 
Virgin and Jetstar aircraft sit at Sydney airport.
Airlines' frequent flyer programs are one of the loyalty schemes that are "exploiting consumers by providing them with low-value rewards of dubious benefit," Fels says. (AFR / LOUIE DOUVIS)

Confusion pricing

If you've signed up for something with a convoluted fee structure that you didn't fully understand, then you're a victim of confusion pricing.
The benefit to businesses here is the complex structures make it particularly tricky for customers to compare prices, which in turn dulls competition in the market.
Fels says telcos and financial providers were the biggest culprits of the practice, but that it also existed in other industries.

Algorithmic pricing

Some businesses use algorithms to automatically set their prices. Because these could take competitors' prices into account, Fels said the practice could be illegal in some cases as cartel conduct.
The demand on Australia's energy system is expected to hit a once-in-a-decade high this summer.
Fels says price discrimination occurs in the retail energy market. (Nine / iStock)

Price discrimination

The final exploitative tactic identified by Fels was price discrimination. While varied, it's essentially just charging different customers different prices for the same product, often based on whether someone is capable of paying a higher fee.
Fels said the issue was getting worse in the digital age, and that it was particularly common practice for banks.
"There are no price wars in banking," he told the Press Club.
"Where there is the possibility, however, of a customer switching to a competitor, banks tend to reduce prices just for them whilst retaining higher prices for loyal consumers more. This is unfair."
He also pointed the finger at the energy sector, where he called for a regulatory review.

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