Supermarkets accused of price gouging

The Guardian today carries a story about alleged price gouging by the supermarkets. Tesco and Asda refute the charge but they are said to have lifted the prices of a number of necessary purchases for many household goods in the lead up to Christmas.

“Both supermarkets, according to Bridgeman, would be able to use their sales data or information from loyalty cards to identify those purchases customers feel they have to make at Christmas and then target these categories for some steep rises “to extract maximum profit” from shoppers who have neither the time nor capacity to go elsewhere. So household cleaning goods, shaving products, toiletries, lightbulbs, batteries, pickles, sauces, herbs and spices typically consumed at Christmas, favourite seasonal drinks, hangover and indigestion pills, and must-have family presents were all categories seeing dramatic hikes on some lines”

Price gouging involves charging more for consumers whose demand is price insensitive, in other words the price elasticity of demand is low. This would allow the retailers to achieve a higher profit margin on their sales as they extract consumer surplus and turn it into extra producer surplus. The accusation is a strong one more so because many thousands of families on lower incomes may have suffered price hikes at a time when budgets are already under enormous pressure from the effects of the recession and rising utility and energy bills.

More here: How supermarkets can cut ‘thousands of prices’ but your bills may go up