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Posts Tagged ‘bounded rationalty’

What’s really on offer?

For years, the UK consumer organisation, Which?, has exposed misleading supermarket pricing practices. These include bogus price reductions, ‘cheaper’ multi-buys, smaller pack sizes and confusing special offers. Claiming that these practices are still continuing, Which? has made a super-complaint (available to designated consumer bodies) to the competition regulator, the Competition and Markets Authority (CMA).

Commenting on this action, Which? executive director, Richard Lloyd said:

“Despite Which? repeatedly exposing misleading and confusing pricing tactics, and calling for voluntary change by the retailers, these dodgy offers remain on numerous supermarket shelves. Shoppers think they’re getting a bargain but in reality it’s impossible for any consumer to know if they’re genuinely getting a fair deal.

We’re saying enough is enough and using one of the most powerful legal weapons in our armoury to act on behalf of consumers by launching a super-complaint to the regulator. We want an end to misleading pricing tactics and for all retailers to use fair pricing that people can trust.”

The CMA will consider the issues raised under the super-complaint to establish whether any of them are significantly harming the interests of consumers. It will publish a response within 90 days from the receipt of the complaint on 21 April 2015. The possible outcomes include:

recommending the quality and accessibility of information for consumers is improved
encouraging businesses in the market to self-regulate
making recommendations to government to change the legislation or public policy
taking competition or consumer enforcement action
instigating a market investigation or market study
a clean bill of health

Some 40% of groceries are sold on promotion. Supermarkets are well aware that consumers love to get a bargain and use promotions to persuade consumers to buy things they might not otherwise have done.

What is more, consumer rationality is bounded by the information and time available. People are often in a hurry when shopping; prices change frequently; people are often buying numerous low-value items; and they don’t know what competitors are charging. People may thus accept an offer as genuine and not spend time investigating whether it is so. Supermarkets know this and use all sorts of tactics to try to persuade people that they are indeed getting a bargain.

Videos
Supermarkets Face Super-Complaint On Pricing Sky News (21/4/15)
UK supermarkets face possible probe over pricing practices Reuters, Neil Maidment (21/4/15)
Which? launches ‘super-complaint’ against supermarkets BBC News, Stephanie McGovern (21/4/15)

Articles
UK supermarkets dupe shoppers out of hundreds of millions, says Which? The Guardian, Rebecca Smithers (21/4/15)
Supermarkets face inquiry into ‘rip-offs’ The Telegraph, Dan Hyde (21/4/15)
15 supermarket rip-offs that led to an inquiry The Telegraph, Dan Hyde (21/4/15)
What does Which?’s supermarket pricing complaint mean for you? The Guardian (21/4/15)
Supermarkets hit back over Which? report on pricing Financial Times (21/4/15)

Press release
Which? ‘super-complains’ about misleading supermarket pricing practices Which? (21/4/15)

CMA case page
Groceries pricing super-complaint Competition and Markets Authority (21/4/15)

Questions

  1. Give examples of supermarket offers that are misleading.
  2. Why are supermarkets able to ‘get away with’ misleading offers?
  3. How can behavioural economics help to explain consumer behaviour in supermarkets?
  4. Identify some other super-complaints have been made to the CMA or its predecessor, the Office of Fair Trading. What were the outcomes from the resulting investigations.
  5. What is meant by ‘heuristics’? How might supermarkets exploit consumers’ use of heuristics in their promotions?
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