x Abu Dhabi, UAEMonday 24 July 2017

Competition not cartels are the way forward

Comment: If competition is forced out of business, the minute the cap is raised prices will spike sharply, with consumers left without a choice.

There are very few certainties in the dismal science of economics, except perhaps one: the law of supply and demand, and its effect on prices.

Economists as diverse as Aristotle, Adam Smith and Karl Marx cast their collective differences aside to agree that, as St Thomas Aquinas puts it: "value can, does and should be increased in relation

to the amount of labour which has been expended in the improvement of commodities".

Attempts to either cap or collar prices invariably end in tears. And while countries with sufficiently large reserves can subsidise prices up to a point, asking the private sector to do the same is bound to be troublesome.

While a number of the capital's largest stores including Lulu, Carrefour and Spinney's have agreed to the Ministry of Economy's price-capping plan, lowering some prices to the wholesale cost, others by up to 50 per cent, other shops will be unable to follow suit.

Abela, for example, which operates an up-market delicatessen in Abu Dhabi, has said that it cannot afford to do so.

Small convenience stores, beloved by many members of the community, are also unlikely to be able to introduce cross subsidies - for the large retailers will be able to make up the discounts by selling other products at a premium. The move looks destined for failure.

If the competition is forced out of business, the minute the cap is raised prices will spike sharply, with consumers left without a choice.

Something similar was tried in the construction industry a couple of years ago, though prompted by falling prices rather than soaring ones.

The United Arab Emirates Cement Manufacturers Association tried to fix prices at around Dh240 a tonne. Even though the construction industry was picking up, sales fell to about Dh200 a tonne, with the Ministry of Economy saying that it would not allow the creation of a "monopoly bloc that fixes the price to their advantage".

It should also avoid the creation of a monopoly bloc to lower prices.

Consumers' best interests are served by competition, not cartels.