Keep the prices high – at any cost!

Price Fixing sounds like a positive thing to the uninformed reader. Fixing a car or fixing a fence are good things, clearly if there was something that needed to be fixed and it was fixed – it was a good thing – right?

People might be forgiven for associating Price Fixing in the same positive light, however it is a completely different basket of laundry, the problem that is being solved is not a broken fence or a car, it is you and I and our ability to purchase goods and services at a “fair market price.”

When companies misbehave in this way, it is you and I that are being “Fixed Up.” Some companies do this illegally by making secret deals with their competitors resulting in anti-competitive marketplaces where the normal rules of competition, supply and demand are reduced and us, as consumers, consequently pay more for goods and services than we would otherwise.

That’s just not cricket!

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In Australia we have the government watchdog and defender of consumer rights in the form of the Australian Competition and Consumer Commission (ACCC) that has the charter to promote competition and fair trade in markets to benefit consumers, businesses, and the community.”

Recently the ACCC announced a major win in the battle against unfair and anti-legal stuffcompetitive behaviour in the Australian market with the announcement that they have won a Federal court case and stained Colgate-Palmolive’s reputation with more than $18million AUD in penalties and court costs associated with their “cartel-like behaviour” that led to consumers paying more for their laundry detergent than they would have otherwise.

It seems that back in 2009 a new “ultra-concentrate” product was coming onto the Australian market, the new product was apparently cheaper to produce, had stronger marketing power with the “ultra-concentrate” terminology making customers feel that they were getting more as compared to “regular concentrate” and ultimately a game changer for the manufacturers fighting for the share of wallet from the Australian consumer.

During this time, our friends at Colgate had made some phone calls to their friends at Unilever, Cussons and Woolworths and over time made agreements designed to ensure that there was not an ensuing series of price corrections due to the reduction in manufacturing costs and the companies involved would be able to pocket the savings instead of passing them on to the consumer as would be expected in a truly competitive environment.

Interestingly enough, the mass media reports (samples in the references section below) generally focussed on the fact that Colgate did not pass on the savings they had created through the switch to the new product. This in itself is not illegal, in Australia companies are generally free to charge whatever they can for a product, regardless of actual production cost. Normally a “low price” strategy will base the price on the cost of manufacturing plus an acceptable margin, whilst “high price” strategies are generally achieved through perceived brand value (what a customer is willing to pay) and lack of competition, (Iacobucci, 2014, ch9) the two concepts of cost recovery (with margin) and competitive pressure creating lower and upper limits for the product price.

This upper limit for pricing is where Colgate found themselves in hot water with the ACCC, their pricing agreements with competitors created an artificial watermark keeping prices high that would not normally exist in a competitive environment and it is for this that they got washed up and hung on the line to dry.

Whilst not so good for Colgate directors, it is good news for consumers as the normal competitive market pressures on the upper limit of pricing for laundry products has been restored. The next time you go shopping for laundry detergent, take a moment to compare the prices to last time, you might be pleasantly surprised…!

By Jeremy O’Brien. WordPress ID Jeremyob.  Deakin ID 216224841

References:

Iacobucci, D 2014, Marketing Management (MM), 4th Edition, Cengage Learning

http://www.abc.net.au/news/2016-04-28/colgate-palmolive-penalised-for-laundry-detergent-cartel/7367394

http://www.heraldsun.com.au/news/national/accc-extracts-18m-fine-from-colgatepalmolive-and-pz-cussons-for-cartel-to-shrink-laundry-powders/news-story/a40aeed765ca0c68e2e485e0227f56c7

https://www.accc.gov.au/business/anti-competitive-behaviour/anti-competitive-agreements

https://www.accc.gov.au/about-us/australian-competition-consumer-commission/legislation#the-competition-and-consumer-act-2010

https://www.accc.gov.au/media-release/colgate-ordered-to-pay-18-million-penalty-in-laundry-detergent-cartel-proceedings

Ong, Stephen. Go Global! Managerial Economics: Oligopoly & Monopolistic Competition, May 2013. http://www.slideshare.net/stephenongch/mba1014-oligopoly-monopolistic-competition-250513 Retrieved May 1 2016

Perry, Greg. (Image) Retrieved via http://mike-simplelight.blogspot.com.au/2011/08/price-fixing-again-in-mount-pleasant.html

 

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