The Legalities of Price Gouging

Amid ongoing discussions on whether major supermarkets engage in price gouging, a common question emerges: What is price gouging, and how can businesses steer clear of it? This article explains the basics of price gouging and offers tips to safeguard your business from engaging in such practices. 

 

What is Price Gouging? 

It is the practice of increasing the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair by consumers.  

 

Price Gouging vs Inflation 

While price gouging often stems from deliberate business decisions, inflation is directly influenced by broader market dynamics. Inflation reflects a general increase in prices driven by economic factors like demand, costs, and money supply over time. In contrast, price gouging is concentrated and opportunistic. 

Is Price Gouging Illegal? 

In response to sudden increases in demand or shortages, businesses may implement substantial price hikes. Various factors contribute to this, such as earning profits and market conditions. 

Due to these factors, prices for some products and services can remain stable for extended periods, while others experience frequent fluctuations due to these factors. 

While perceived as unfair, high prices or increases, on their own, are not inherently illegal. However, if a business’s pricing practices harms competition, it may be deemed illegal. Making false or misleading claims about prices, including the reasons for changes, is also against the law. 

 

Compliance with Pricing Laws 

To adhere to pricing laws, it’s crucial for your business to avoid the following: 

 

Anti-competitive Pricing: While businesses have the freedom to set their own prices, it is imperative that they act independently of other businesses. Certain pricing behaviour is illegal because it harms competition, leading to less choice or higher prices for consumers. 

 

Price fixing: Collaborative agreements among competitors to set prices rather than competing independently constitute price fixing and is illegal. 

 

Predatory Pricing: Selling products below cost price is generally legal, but if it significantly diminishes competition, it is considered an abuse of market power and is illegal. 

 

Misleading or Deceptive Conduct: Businesses must not mislead consumers regarding prices or reasons for price changes. 

 

Key takeaways  

  • Price gouging itself is not inherently illegal, but other pricing practices that diminish competition or mislead consumers may be deemed illegal. 
  • It is important to stay compliant with the pricing laws. 

 

 

Gladwin Legal are experts in Consumer Law and have extensive experience in advising businesses. If you require assistance in understanding your legal obligations, please contact us at or 1300 033 934.