Drip pricing is a form of misleading and deceptive conduct prohibited by Australian competition law. In a judgment handed down on 17 November 2015, the Federal Court found that our favourite low-cost airlines, Jetstar, and Virgin, engaged in ‘drip pricing’. Both airlines allowed the ACCC to submit orders for penalties, which it believes are appropriate in the circumstances. In this article, we’ll discuss the nature of drip pricing, why Australia’s competition law prohibits this practice, and finally, the case against Jetstar and Virgin.
Drip Pricing
Drip pricing involves a business advertising a headline price to consumers, which is then eroded bit by bit as the transaction proceeds. Australia’s Consumer Law, located in Schedule 2 to the Australian Competition and Consumer Act 2010 (Cth), prohibits drip pricing. Sections 29(1)(i) and 18 respectively prevent misleading representations with regards to the price of goods and services, as well as misleading and deceptive conduct. Drip pricing is prohibited because it is misleading as to the price that the consumer will actually pay if they proceed with the transaction.
Jetstar and Virgin
Jetstar and Virgin displayed drip prices on their websites, mobile sites and their subscription emails during 2013 and 2014. Jetstar and Virgin failed to disclose adequately the booking and service fees consumers eventually had to pay further down the line in the booking process ($8.50 and $7.70 respectively).
Judge Foster held that both airlines employed a technique requiring each website or mobile user to enter a ‘carefully staged booking process’ through which they disclosed information on a continuous basis. As a result of each disclosure, the headline price increased ‘bit by bit’ until the airline revealed the final, higher price for the fare.
With typical linguistic flair, Judge Tracey in ACCC v AirAsia Berhad Company [2012] FCA 1413 explained the inherent vice involved in drip pricing. She went on to say that the prohibition against drip pricing is to prevent businesses seducing consumers with lower quoted prices than the actual amount he or she will have to pay.
‘Unless the full price is clearly displayed, a consumer would be drawn, like a moth to flame, to a transaction they would not otherwise have found to be appealing and grudgingly pay the additional costs rather than go to the trouble of withdrawing from the transaction and looking elsewhere.’
Virgin and Jetstar displayed prices that attracted consumers who would not otherwise have been interested in their airfares. Consumers paid the extra fees, rather than bother with the extra effort in finding another airfare.
The airlines’ conduct misled consumers, violating sections 18 and 29 of the Australian Consumer Law. The Federal Court will likely award significant penalties, which we will discover in early December.
Key Takeaways
In summary, drip pricing is anticompetitive conduct and is prohibited by Australian Consumer Law. By displaying a headline price than is lower than what the consumer will actually pay, it deliberately misleads him or her into believing they will pay a lower price. Drip pricing also disadvantages competitors, who comply with the legislation.
Questions? Please get in touch on 1300 544 755. LegalVision’s experienced competition and consumer lawyers would be delighted to assist.