by Rick Lowe
"To trade is to exchange one item for another, as butter for coal. Each party to any trade is both a buyer and a seller, and a person must be satisfied in that dual capacity before he will trade voluntarily." Paul L. Poirot
Price control is more properly described as government price-fixing through force. And force is something the private sector is forbidden to do.
However, according to press reports, Fresh Market is being targeted by the bureaucrats who are suggesting that even items like organic milk and cheese products – that did not exist when price controls were implemented in The Bahamas – fall under the terms of The Price Control Act, but they believe they have the right to force them to lower their prices.
Surely this is immoral?
In addition, it's not a policy that is enforced across the board on items that supposedly fall under the apparently ever increasing list. For example, an "informal" study was conducted by the Nassau Institute back in 2005 when this issue raised its ugly head once more and it showed "that the larger food store chains offer all price controlled items, except dairy products, at prices considerably lower than the maximum retail prices permitted. In smaller "Mom and Pop" or neighbourhood stores the results are the opposite."
To quote further from their commentary:
"This result is obviously not what the social planner's intended when they implemented price controls. However, it is a true reflection of the market at work. "Mom and Pop" stores serve a different market than the food store chains so they can demand higher prices, despite the legislation. These neighbourhood stores are physically closer to their clientele, purchase and sell in smaller quantities… often on credit, which require higher margins because of the economies of scale."
"Of course government promotes price controls as protection for the consumer and misunderstand how the market works."
Read more here…
Silly government policies like price control cause at least two definitive actions:
- Shortages result as the seller cannot afford to lose money on their investment and stay in business, and,
- Prices on other goods and services have to rise to compensate for the losses on the "price controlled" items.
Obviously the legislation was conceived to force lower prices, but the reality is the opposite occurs or the product is no longer available. Both outcomes harm the consumer. Most advanced nations understand this and repealed price control legislation, but every so often Bahamian bureaucrats seem to believe they should make us act like a banana republic.
The government does not seem to take into account the inherent risk taken by grocery stores – spoilage, shrinkage due to people consuming product within the stores and tucking away the evidence (a practice which many here feel that they have every right to pursue) and outright theft – both through customers and certain disloyal staff who will find ways to exempt themselves and their friends/associates from paying the purchase price of goods offered for sale.
Pricing is formulated so that the product can be supplied again for the customers, as well as cover rents, utilities, paychecks for employees and to cover governmental requirements e.g. National insurance, shop and business licences, insurances and all other underlying ancilliary costs of business. There must also be a margin for fair profit to pay shareholders for their commitment and to cover increases in costs of the goods and supply lines and governmental taxation as well.
After all of this limiting the price tag can have two effects – if goods continuously cost more than they able to be sold for, they will be dropped from the shelves. (Loss leaders are short term inducements.) and secondly, if they are made to be supplied at a lower price, then a cheaper supplier will be sought – and that will result in a probable reduction of quality and certainty of supply.
So well stated Rick.. Government imposed price controls in the long-run not only reduces supply but provides poorer quality products of inferior value as a result.. How fortunate we are to have Fresh Market as an alternative to the other mass food retailer.. In a free market, consumers decisions determine prices through the invisible hand of supply and demand.. As for me, I drive past two retail food outlets in Cable Beach to shop at Fresh Markets out west.. Sometimes I pay more for a specific good, but my choice (consumer preference) for high quality, organic products is my choice and not some foolish government bureaucrat.. This is just another example of government regulation interfering with the free market which increases prices across the board in the form of administrative costs..