Price ýxing It is illegal for two competing businesses to agree on the same prices for their products. They can have similar prices, but they can’t work together to raise or lower them. For example, petrol stations often change their prices during the week. Some people think nearby stations might be working together to set prices. If this is proven, it is against the law because it stops fair competition for consumers.
SkillBuilder discussion Investigating 1. Why is price ýxing illegal in Australia? 2. Can you think of any examples of price ýxing? Do you think it is easy to prove? 3. Instead of price ýxing, big supermarkets are in a price war, selling things like milk and chicken for less by paying farmers less. Should supermarkets pay farmers more?
FIGURE2 If service stations agree to change prices together, that’s called price ýxing.
Misuse of market power
Not all businesses are the same size. Bigger businesses can sometimes use their power unfairly to hurt smaller ones. The law stops this. For example, Woolworths was ýned $7 million for trying to stop some restaurants from selling alcohol. They complained to the government about the restaurants getting liquor licenses. Woolworths said they would stop complaining if the restaurants didn’t sell take-away alcohol. A court found Woolworths broke the law. Predatory pricing Predatory pricing happens when a business sets very low prices to drive competitors out of the market. This business can lose money at ýrst but hopes to gain more customers later. In 2011, Coles and Woolworths sold milk for $1 per litre to attract shoppers away from competitors like Aldi and IGA. They could afford to lose money on milk because they made good proýts on other items. Smaller shops couldn’t lower their prices as much, so they lost customers. If these smaller stores closed, the big supermarkets could raise their prices later since there would be less competition.
FIGURE3 Woolworths was ýned for attempting to misuse its market power to restrict the operations of competing liquor outlets.
TOPIC16 How markets work 573
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