The issue of “price gouging” is very topical – not just in New Zealand, but globally – as governments are effectively forced to reduce the competitive playing field in response to COVID-19.
The New Zealand Government is acutely aware of the risk that essential businesses (eg supermarkets) might seek to take advantage of these unusual trading conditions. In an attempt to combat that risk, the Government has established a “whistle-blower” email address (pricewatch@mbie.govt.nz) for people to report allegations of price gouging. That email address attracted almost 1,000 complaints in its first couple of days and, if media reports are to be believed, it would appear there is a common sentiment among New Zealanders that they are feeling “ripped off”.
But complaints aside, is “price gouging” illegal in New Zealand, or is it just morally wrong?
The answer: while not explicitly illegal, there are some mechanisms that should help to keep pricing in check.
Unlike some other jurisdictions (for example, in the EU where the prohibition on monopolisation prohibits excessive pricing), New Zealand does not prohibit price gouging/excessive pricing generally. New Zealand’s limits on excessive pricing exist through regulation under Part 4 (Regulated goods or services) of the Commerce Act 1986 – which only applies to regulated services – and, to a far lesser extent, under section 36 (Taking advantage of market power) of the Commerce Act. (However, section 36 may only “bite” when the excessive pricing (or related conduct) is directed at a competitor.)
Consumer laws will also apply, depending on the circumstances. Among other things, the Fair Trading Act 1986 prohibits false or misleading representations about price (so any reasons for price increases must be true), and the Credit Contracts and Consumer Finance Act 2003 regulates fees in consumer credit contracts.
As noted by the Commerce Commission in its Consumer Rights FAQs:
“While businesses are free to set their own prices, and increasing prices above levels charged previously isn’t illegal in New Zealand, the Fair Trading Act prohibits misleading and deceptive conduct and false representations. This means that if a business gives a reason for a price increase it must be true or the business risks breaching the law.”
There is also the inherent risk that, if the Government detects poor behaviour from firms in certain industries now, it will flag those markets for the Commerce Commission’s next market study. (The Commerce Commission has powers to conduct competition studies into industries and make recommendations to the Government accordingly. Their previous study into the Retail Fuel Market has led to proposed new legislation, and prompted industry-led changes.)
Despite the legal position, the mere threat of complaints and having to deal with allegations of price gouging might just be enough to keep essential businesses’ pricing in check.