What the law does and doesn't allow
Businesses can generally set, raise and lower the prices they charge for the products and services they supply.
Businesses decide the prices of their goods and services based on a variety of factors, including:
- recovering the costs they face in supplying the goods or services
- earning a profit
- conditions in the
market –
demand and
supply for those goods or services.
The prices for some goods and services can remain relatively stable over long periods. In other instances, prices for goods and services can change significantly on a regular basis due to these factors.
If consumers or businesses think the prices another business is charging are too high, or have increased too much, they can consider alternative suppliers or consider not purchasing the product or service at all, where this is possible.
Prices that people think are too high, or sudden increases in prices, are not necessarily illegal. However, the business's behaviour around setting prices may be illegal if it harms competition in a certain way.
It's also illegal for businesses to make false or misleading claims about prices, including the reason for any changes in prices.
From 1 July 2026 it is also illegal for very large supermarket retailers (currently only Coles and Woolworths) to engage in excessive pricing of grocery products to consumers.
High or increased prices
People may consider the prices a business charges to be too high, or to have increased too much. This is sometimes referred to informally as ‘price gouging’ or ‘excessive pricing’.
Generally, high pricing, or passing on higher or increased costs, is not enough on its own to break the law. Costs may increase for genuine reasons like fuel cost increases. This is normal business practice.
Example: an increase in price made up of an increase in costs
This example shows that the total cost of a product may increase because of higher costs, even though the profit for the retailer remains the same.
Increase in price due to increase in costs
Sometimes businesses may respond to a sudden rise in demand or lack of supply with very large price increases. These responses are often normal business practices which are not necessarily illegal.
Case study: increased prices based on supply and demand
In 2011, Cyclone Yasi destroyed the bulk of North Queensland’s banana crop when it passed through the area.
Bananas were still available from other growers around the country. However, the reduced supply nationally forced up demand. This led to higher prices for bananas across the country as wholesalers and retailers were prepared to pay higher prices to make sure they could get supply of bananas given the significant shortages. The wholesalers and retailers then in turn passed on these higher costs to their customers.
Case study: setting prices in a football stadium
Businesses such as football stadiums often enter into exclusive arrangements with a particular supplier to supply only their products at the venue.
As people can’t bring other food or drinks into the venue, the business doesn't consider the price of the same food or drink items at other locations in setting its prices. It decides to set its prices higher than those charged for the same or similar items at nearby establishments.
While it’s often seen as unfair, prices or price increases that people may think are too high are not necessarily illegal on their own. However, the business's behaviour around setting prices may be illegal if it harms competition in a certain way. It's also illegal for businesses to make false or misleading claims about prices, including the reason for any changes in prices.
Excessive pricing rules for some supermarkets
From 1 July 2026, new rules are in place to prevent excessive pricing by supermarkets earning more than $30 billion per year in Australia (referred to as very large retailers). These rules currently apply only to Coles and Woolworths.
A very large retailer only engages in excessive pricing of grocery products if, in all the circumstances, the pricing is ‘significantly excessive’ when compared to the costs to the supermarket to supply the product plus a reasonable margin.
We are monitoring pricing by these supermarkets.
Supermarket costs and margins
The total price of a grocery product is made up of direct and indirect costs to the supermarket in selling the product, and the supermarket’s margin. The supermarket's costs may be made up of a lot of different things such as:
- the cost of buying or producing the product
- transport and fuel costs
- storage costs
- staff wages
- store rent
- research and development for new products
- new equipment to produce new products.
The margin is the profit to the supermarket after subtracting all the costs from the retail price it receives for the product.
Sometimes supermarket prices might seem high, but they may not be excessive once all the costs and circumstances are considered.
Example: how supermarket costs and margin make up total price
In this example, the retail price set by a supermarket for a grocery product is $8.00. The total costs to the supermarket in selling the product (with different items making up the cost) is $7.00. The supermarket’s margin for the product is therefore $1.00.
Prices, costs and margins of a grocery product
Shrinkflation and skimpflation of grocery products
Sometimes the size of a grocery product may reduce, or the producer may switch to lower quality and cheaper ingredients, while the price stays the same or increases. This is sometimes referred to informally as ‘shrinkflation’ or ‘skimpflation’. This on its own is not illegal.
Shrinkflation and skimpflation do not necessarily mean a very large retailer has engaged in excessive pricing for its product.
However, a change in product size or ingredients that lower costs and leads to a higher profit for the supermarket might be relevant when considering whether it has engaged in excessive pricing.
Surge or dynamic pricing
Surge or dynamic pricing is when businesses increase their prices during periods of high
demand. For example, ride-share companies may increase their prices when there are many people wanting rides and not enough available drivers.
Surge or dynamic pricing is not illegal, but businesses must be clear about the price consumers will pay. They must also not make false or misleading claims about their prices.
Anti-competitive pricing
Although businesses are free to set their own prices, they must do so independently of other businesses. Some pricing behaviour is illegal because it harms
competition, leading to less choice or higher prices for consumers.
Price fixing
Price fixing happens when competitors agree on pricing instead of competing against each other. Price fixing is a form of cartel conduct and is always illegal.
For more information, see Price fixing.
Minimum resale prices
Suppliers must not try to stop resellers selling goods or services below a minimum price. It’s also illegal for resellers to ask their suppliers to stop their competitors from discounting.
For more information, see Minimum resale prices.
Predatory pricing
It’s usually legal for businesses to sell products below the cost price. However, if this is done in a way that
substantially lessens competition, this is considered misuse of market power and is illegal.
For more information, see Misuse of market power.
