Brought to you by Treadwell Gordon

We are all trying to find our way through the unprecedented fog of Covid-19.<

Oddities such as social distancing and supermarket security guards fill our days while we try to find our inner zen spot before losing the plot with those in our bubbles.

To add to the dystopia, reports are surfacing of cauliflower outpricing chardonnay, and routine shopping trips coming in $50 or more over budget. It's enough to push anyone to the brink of their sanity.

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Supermarkets swear they aren't price-gouging.

They cite seasonal price fluctuations, as well as the removal of discounts to prevent essential items selling out, to justify what appears to be outlandish prices on their shelves.

But if price gouging is occurring, is it wrong and what can we do about it?

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It's a tough one. Instinctively it feels abhorrent for businesses to price gouge in a time of crisis such as the one we face.

That said, it's unlikely to be illegal. You've got every right to be outraged by this. NeedToKnow3

Competition law is clear: only if your business is subject to regulation (like airports, telecommunications or electricity lines companies) is it illegal to charge high prices.

The rationale is this. If a business is charging extortionate prices to consumers, the door opens for others to swoop in with competitive offerings to undercut these inflated prices.

Competition acts as an incentive for existing suppliers to set prices at a reasonable level.

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But the theory works only if there's a certain level of competition in the market, both in terms of actual competition (those who currently compete in a market) and potential competition (those who, given the right incentive, could enter the market).

Harriet Young
Harriet Young

Unfortunately, the world we are faced with has crippled actual competition and has totally wiped out the threat of potential competition.

With only a handful of "essential services" in the proximity of our bubbles, we can't – as a matter of public health – shop around to get cheaper deals, nor can we resort to greengrocers or roadside stalls for our five-plus-a-day.

Likewise, it would be practically impossible for a new business to establish itself as a credible competitor when all but existing essential suppliers have been cut off at the pass.

To make things worse, it may not be the consumer-facing businesses (such as supermarkets or pharmacies) inflating prices.

Often price increases come from further up the chain; producers and manufacturers of goods, importers, middlemen. When consumer-facing businesses inevitably pass these price hikes on to consumers, those who are the root cause of the price increases tend to be shielded from scrutiny.

Our supermarket duopoly is usually adept at leveraging its buyer power to ensure input costs are low – but this is a unique situation.

It's difficult to divine what is going on without a forensic dive into supermarkets and suppliers' books and communications. But what we can say for certain is that competition in our markets across the board has reduced significantly, and less competition generally translates to higher prices and/or lower quality goods and services.

Ultimately, our Government has made a call that dramatically alters the landscape for New Zealand consumers in an attempt to "flatten the curve" – a pursuit that will no doubt save lives.

It has done so with a heavy heart, in the hope that stopping the economy in its tracks is the lesser of two evils compared with Covid-19 laying waste to our communities. But this move also exposes one big flaw in our free-market mentality: those businesses on the "right side" of the lockdown have all the carrots to increase the prices of products they sell and no stick to punish them.

Treadwell Gordon
Treadwell Gordon

So why not outlaw price gouging?

The simple answer is that it would be very difficult and expensive. In supermarkets alone, it would likely require price-reporting of hundreds of thousands of products at all levels of the supply chain. And, given the fluidity of prices because of specials, seasonality of produce and availability, price gouging would be hard to police.

There would also need to be a means of calculating a threshold for what constitutes price gouging, not to mention a real risk that retailers would increase product prices to just below this threshold, creating a price ceiling.

This would not be good.

For now, the best thing we consumers can do for our markets is to report suspected price gouging to pricewatch@mbie.govt.nz, and to stay in our bubbles so as to flatten that curve.

Hopefully a flatter curve means businesses will be allowed to open up sooner and active competition will return to eradicate price gouging. In the meantime I suggest you might choose the chardonnay over the cauliflower.

Covid19.govt.nz: The Government's official Covid-19 advisory website

• Harriet Young is a principal at Treadwell Gordon.