A Note on Prices and Competition

Competition tends to keep prices lower than would be the case in the absence of competition.

That, however, does not equate to saying that a multiplicity of sellers offering exactly the same price is evidence that there is no competition. It may, and often does, mean that there is lively competition.

For example, if all the petrol stations in a town charge the same for petrol, what will tend to happen if one of them changes the price ? If the change is upward, that outlet will, obviously, tend to lose business.

The owner's failure to commit commercial suicide proves something; but that something is not that there is an effective monopoly, as is often alleged, not just about the petrol retail sector, but about the meat factories, and the airlines, and just about every sector in the economy, it sometimes seems to me.

Of course, it is the case that some sectors are indeed characterised by effective monopoly conditions, but lack of price diversity by itself is not a reliable indicator of that.