So, I am writing a critical review of this article: "Grocery costs The ferocity of the political campaign against Woolworths and Coles tells us more about politics than about alleged 'price gouging' by the big two.

Supermarkets have clearly become the poster children for alleged "price gouging" behaviour in the cost-of-living saga.

Not all supermarkets, but specifically Woolworths and Coles, while their smaller competitors happily fly under the radar.

Sticker shock has become a common experience over the past couple of years, and we have all at times wondered what cost increases could have justified observed price rises.

This is not confined to supermarkets. Reserve Bank governor Michele Bullock recently said some businesses were using general inflation as a cover for lifting prices to increase profit margins. That's certainly a possibility, and economists should not be so wedded to models of competition as to rule out such practices. But is this really what is happening in supermarkets?

The Australian Consumer and Competition Commission is committing its considerable resources for a year to produce an answer, and other inquiries are under way. But a much easier and quicker way to arrive at a broad-brush answer is to do simple desktop analysis of Woolworths' and Coles' financial results for the latest half-year, as announced in recent days.

The two putative villains generated earnings before interest and tax (EBIT) of $2.577 billion in the half-year - which sounds like a huge sum until it is put into perspective. It came from sales of $45.677 billion, hence an average profit margin of 5.6 per cent.

If Woolies and Coles were to turn themselves into not-for-profit charities and reduce prices to forgo all EBIT, the benefit to consumers would represent less than half a cent in the dollar of total household consumption expenditure in the period, and about 4 in the dollar of expenditure on food.

As the prime minister explained last week, we have a market economy in which businesses are expected to make a profit. So, eliminating all profit is out of the question; but how much of it represents the alleged "gouging"?

If it is half, then the benefit to consumers from stopping the gouging would be 2 in the dollar of food expenditure. If it is a quarter, the benefit is 1 in the dollar. Is this what the supermarkets' critics have in mind?

These calculations are based on the total amount of EBIT. The increase over the two years since the corresponding period of 2021 was $464 million, which is a better indicator of the contribution to the increase in prices (inflation).

The increase in total household food expenditure over that period was about $7.5 billion, so supermarket EBIT contributed about 6 in the dollar.

As these calculations suggest, average EBIT margins did increase over those two years: from 5.1 per cent to 5.6 per cent. Thus, whereas in the second half of 2021 shoppers were contributing $5.10 in profit for every $100 spent, in 2023 this had risen to $5.60. The ACCC inquiry will shed light on the reasons for this modest increase.

But whichever way one looks at the arithmetic, there is no prima facie case that supermarket profits have been a major contributor to cost-of-living pressures.

That is not to deny that some products in supermarkets may be exceptionally profitable for the retailers. But if that is the case, then they must be offset by other products with exceptionally skinny margins for the average to be what it is.

It is also not to deny that suppliers to supermarkets may have increased their margins - not farmers, but suppliers with pricing power such as the long list of (mostly despised multinational) manufacturers whose packaged products fill supermarket shelves. If so, it is for them to explain.

Another possibility is that the supermarket industry is so uncompetitive that firms cannot be bothered reducing costs and passing at least some of the benefit on to consumers. However, this seems unlikely in view of sizeable cost-cutting investments over the years in distribution, inventory management and self-service.

The ferocity of the political campaign against the big two tells us more about politics than about nefarious supermarket pricing. It is a populist romp designed to distract attention from the government's own policy contributions to inflation.

The previous government was also complicit by excessively stoking aggregate demand for two years. Now in opposition, they are happy to join in the populist campaign - especially the Coalition's rural and regional wing.

But it is the lot of oppositions to huff and puff. It is for governments to steady the ship and steer debate in a more rational direction, not fan the flames of populism.

It may be that the political circus soon moves on and the supermarkets leave the ring unscathed. But if the inquiries under way lead to a significant tightening of regulation, it will be another blow to the free market economy we all benefit from."

And so far this is what I have: "Carling's article titled "Maths show supermarkets not to blame for cost-of-living crisis" suggests that criticism against Australian supermarket grocery chains-woolworths and coles for alleged price gouging is unfounded and merely a result of the price mechanism of the invisible hand (Carling, 2024). While he demonstrates a deep methodology behind his conclusions, he has an incomplete outlook on consumers and fails to see the dire concentration of supermarkets as oligopolistic. Woolworths and Coles by virtue of their oligopolistic control, do in reality play a substantial role in exacerbating cost of living pressures, which demands a closer examination beyond mere EBIT margins.

Solely focusing on EBIT margins oversimplifies the complex dynamics of pricing strategies. Their 5.6 per cent profit margin might seem modest but it translates to 2.7 billion dollars, arguably a high number, and does not negate price gouging. Especially as their profit margins are higher than international competitors (Mitchell, 2024). A study by the Australia Institute discredits the low profit margin argument, suggesting that this argument is a deliberate "misportrayal of the nature of food retail business" (Grudnoff et al. 2023). As food retailers do not generally manufacture their own products, but purchase from suppliers, their costs predominantly lie in logistics, inventory, labour and other operative functions. Thus final profits are relatively low to costs. As food retail is not particularly capital intensive, the profits relative to capital investment are more important. ROE is a key profitability indicator that measures the return on investment, relative to the cost (Fernando, 2023). For Coles, an ROE of 33.9% and for Woolworths, an ROE of 25.7% have been reported, which are strong returns, particularly for an industry characterised by significant sales volumes and low-risk investment. In economic theory, such high ROE rates would typically incite new market entrants, creating competition that would erode these margins. However, the persistence of Coles and Woolworths' high ROEs suggests the presence of significant market entry barriers.

Citing that "competitive market" mechanics justify pricing strategies of Coles and Woolworths is blatantly dishonest. Prima facie, Woolworths and Coles' combined market share of 65 per cent (Statista, 2023) disproves signs of healthy competition. As in a perfect competitive market, the market share would be distributed amongst many firms, and all would be producing in tandem to their marginal costs. There are more symptoms of these markets being anti-competitive upon examining their practices and nature such as setting high barriers of entry and their practice of supplier "squeezing". A strategy both Coles and Woolworths have been using is what is called "land banking" whereby purchasing large quantities of land in order to stifle the ability of new competitors to enter the market. This occurred in a growing community in the west of Brisbane where Woolworths bought over 11 hectares of land, without building anything. In fact, such practices dissuaded German brand Kaufland from entering the Australian market (Grigg et al, 2024). Another barrier to entry is the high investment required not just for initial setup but also for sustaining operations at a scale competitive with these established giants. This necessity for substantial investment stems from the economies of scale that Coles and Woolworths benefit froma concept where the average costs per unit of output decrease with increasing scale of operation. These economies of scale allow Coles and Woolworths to spread their fixed costs over a larger number of goods, reducing their average cost and enabling them to offer lower prices that are difficult for new entrants to match. Economies of scale in this context are not limited to production or purchasing costs but extend to distribution, marketing, and technology investments. Coles and Woolworths have developed sophisticated supply chains, comprehensive data analytics for consumer behaviour, and extensive marketing networks that contribute to their competitive pricing strategies and wide market reach. New entrants must match this level of investment in technology, supply chain logistics, and marketing to compete effectively, which represents a formidable financial barrier. Moreover, Coles and Woolworths economies of scale facilitates them with strong bargaining power with their suppliers, exacerbating the lack of healthy competition in the market. Economist David Round touches upon how Coles and Woolworths "squeeze" their suppliers via demanding various fees such as shelf fees, product listing fees, and reduced profit margins (Round, 2006). In fact, the ACCC brought a case against Coles and Woolworths for extracting additional payments from their suppliers via schemes such as the "Active Retail Collaboration" scheme or the "Mind the Gap" scheme (Grimmer, 2018). The reason why Coles and Woolworths are able to lower their net payment to suppliers in such a manner, is because the suppliers seldom have a choice to sell to anyone else because of the Coles and Woolworths exorbitant market share-also suggesting economic efficiency as the suppliers are selling at less than favourable for them.

The article's description of Coles and Woolworths' alleged price gouging as a populist 'political outcry' rather than a failure of the free market, is an undermining of consumers' rationality. This perspective neglects the substantial impact of grocery pricing on consumer behavior, particularly given the significant portion of their income that Australians devote to groceries. According to a 2024 study by the Australian Competition and Consumer Commission (ACCC), groceries, which can consume up to one quarter of Australians' net income, include many items that are income inelasticsuch as milk and bread. This means that demand for these goods remains relatively constant regardless of income changes, granting supermarkets like Coles and Woolworths considerable pricing power. With such a significant share of a paycheck dedicated to grocery shopping, undoubtedly consumers are affected by the prices of groceries. Some correspondents of the survey voiced that they pay more attention to savings, substitute fresh for frozen food and forgo non-essential items (ACCC, 2024). Some even voiced that they have resorted to skipping meals. Coles and Woolworths increased their profit margins by ** during the wake of the covid pandemic whilst Australians' wages declined by **, it is understandable why in return politicians begin demanding regulatory action-this is the job of politicians."

Firstly, does it sound good? And if you have economic knowledge please help me include more economic theory or maybe case studies applicable