Imagine a scenario where a fix was put in to dud consumers by setting a minimum price. People would be rightly outraged.

Price fixing is illegal as is made clear by the ACCC which explicitly states on its website:

“Agreements between competing businesses to fix prices are illegal under the Competition and Consumer Act 2010. Price fixing agreements do not have to be in writing: they can be a ‘wink and a nod’, made over a drink in the local pub, at an association meeting or at a social occasion.

The important point is not how the agreement was made or even how effective it is, but that competitors are working out their prices collectively and not individually.

It is illegal for a business to enter into or give effect to such agreements.”

The ACCC takes price fixing seriously, as is demonstrated by its prosecution of Visy over a price fixing arrangement with its cardboard packaging competitor Amcor. That prosecution resulted in a record fine of $36 million for Visy.

Justice Peter Heerey said in his judgement:

“…it is only individuals who can engage in the conduct which enables corporations to fix prices and share markets.”

“‘Many countries with free market economies have recognised this reality by enacting laws which make cartel conduct by individuals subject to criminal sanctions, including imprisonment.”

Heerey was rightly scathing of the conduct because price fixing effectively defrauds consumers. So what would you say if a government instead of an individual or a corporation entered into an arrangement to do just that — to defraud consumers? And in doing so it excused itself of criminal sanctions as now apply to anti-competitive behaviour? Because that is precisely what the government is proposing to do with its plan to put a minimum price on alcohol.

It is going to enter into a price fixing arrangement with alcohol retailers that will boost profits at the expense of consumers. Furthermore, it will make it illegal for retailers to set their own floor price or to discount products. Effectively the retail alcohol industry is going to be coerced into a massive cartel between itself and the government.

The National Preventive Health Agency has been asked to “develop the concept” as part of a plan approved by health minister Nicola Roxon last week to prevent excessive drinking.

It is expected that the floor price for alcohol would be set between $1.20 and $1.50 per standard drink. That would effectively gut the market for clean skin and lower priced labeled wines while quadrupling the cost of some cask wines. For example, the floor price for a bottle of wine with 8.3 standard drinks would be between $9.96 and $12.45. With some clean skins and labeled wine already selling below this threshold, some consumers will suffer a significant cost penalty.

Markets work by establishing a clearing price for their products. If the clearing price is moving product at the moment, then the government’s floor pricing proposal could have a number of effects.

  • The increased price could mean that the low priced wine is no longer sold thus creating a potential glut which could hurt producers.
  • The floor price doesn’t impact on sales as the market will accept a new clearing price.

If it is the later point then the government is delivering windfall profits at the expense of consumers.

However, neither consequence is acceptable in a free market. ACCC chairman, Graeme Samuel, noted of the Visy case “that it was a premeditated fraud on Australian consumers.” The government’s proposal is effectively the same except that it is being perpetrated in public. For 30 years price fixing has been prohibited by statute, yet this does not seem to deter the government from entering into such an arrangement.

There is absolutely no role for a government in setting minimum prices or preventing a business from marketing its product unless that behaviour is deemed to be to be a misuse of market power under the Trade Practices Act.

Agitate! cannot recall any recent instance where the government has stepped in to set minimum prices. It is the antithesis of the free market and should be resisted. If the government believes it can set a minimum price for alcohol then what is to stop it setting minimum prices for other products?

It reveals a pattern of behaviour where the government overrides the rights of business. Just think of the plain packaging law for cigarettes which are legal products where their manufacturers brand rights have been overridden.

Lastly, the anti-competitive behaviour by the government is an extraordinarily heavy handed approach to a relatively small, but important problem. No one denies the health impact of excessive drinking but creating a national floor price for alcohol is a poor public policy response. As with cigarette taxes, this proposal is effectively regressive in its nature. Those least able to pay are those that are going to be hit.

What is needed is greater education and self-help policies, not anti-competitive price fixing by a government. It is to be hoped that the federal opposition stands by its free market credentials and rejects this anti-competitive proposal.

*This piece was originally published on the Agitate blog.

Peter Fray

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