Dita De Boni suggested in the Herald that the government set up its own chain of supermarkets that, like KiwiBank, introduce competition to a market that doesn’t seem to be working very well.
Matt Nolan hits back against the idea, writing:
Let us think about Progressive vs Foodstuffs a bit here. If both organisations are thumping around their wholesalers, and the duopoly is competitive (due to the organisations selling a homogeneous product where consumers have good information about prices), then the lower cost for products is PASSED ON TO THE CONSUMER!
If Progressive is bullying, and Foodstuffs isn’t, then Progressive has a lower cost structure than Foodstuffs. As a result, Progressive can bid down prices, but is likely to keep a large part of the surplus to themselves. In this case, Foodstuffs is squeezed, and may lose market share, so they have an incentive to bully their wholesalers as well!
If neither firm bullies their wholesalers, they both just charge higher prices, and the consumer pays the difference.
So here is the thing. We feel bad for the wholesaler being bullied by these big companies – understandably! However, if we look at the issue more broadly, their bullying activity may well be reducing the price of some goods and services for the consumer. If we force them to give up their bullying, the consumer then pays a higher price. There are always trade-offs, let’s at least make a slight attempt to remember that – instead of pretending that government ownership will somehow come in and make everything magically better.
I’d just make one point here which is that its really easy to take a look at the prices at the supermarkets, compare them to competing vendors and see if bullying suppliers does lead to lower prices. And, like I’ve pointed out before, places like farmers markets and green-grocers are consistently way, way, way cheaper than the supermarkets. As an urban-liberal I need a steady supply of lime and coriander and spring-onions and these are usually available at the farmer’s market at around a third of the price the super-markets sell them for.
But, an economist could say: the supermarket adds value because I can buy things other than fruit and vegetables, like, say, coconut milk and and pistachios, and the overheads of building and running a gigantic supermarket are built into that cost. Which is true. But compare the cost of chippies, soft-drinks, chocolate and wine in the super-markets to the cost in your local dairy. It’s usually 100% to 150% more than the supermarket.
So products sourced from small local growers are far more expensive in the supermarket while products sourced from large corporations are a lot cheaper. That suggests to me that (a) suppliers get treated very differently depending on their size and (b) the lower prices being gouged from small, local suppliers aren’t being passed onto the consumer.