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.

The Groceries Order

The Chairman of the Competition Authority has been testifying to an Oireachtas committee today on the effects of the abolition last year of the order. The order prohibited below-cost selling of retail goods. The Authority has been a keen advocate of the change. I have been a profound sceptic: I still do not understand why there are any worthwhile benefits to below-cost selling. Given the extremely high concentration in the Irish retail sector and the lack of transparency consequent on the high foreign ownership share, it seems a crazy move to me.

It was "sold" to the public of course on the basis that it would reduce retail prices, and now the public is getting impatient because there is little sign of price reductions.

I haven't seen the text of what the Oireachtas Committee was told this morning, but I hope that it is an improvement on the "wait a little longer" message that other advocates such as the bould Eddie Hobbs have been peddling. I would like to think that the boffins have a model to measure the effect of the change, but I am not holding my breath.

However, I am not going to join the twits who say that because prices have risen, the change in the law has been a failure: perhaps without the change, the rise would have been greater.