Oh Mo! Laundry powder cartel reveals the stain that won’t come out of free markets.

The ACCC is fighting a washing detergent cartel. Turns out Colgate-Palmolive, Cussons and Unilever may not be so squeaky clean!

Image
Think you can use Cold Market Power to go on a price fixing Spree? Omo you don’t!

It sounds funny, because we expect cartels to exist in big things: Oil, diamonds, global shipping.

But a detergent cartel is actually very serious. Those ultra-concentrated granules keep whites white and brights bright in every house in Australia. higher prices hurt us all. That’s why the ACCC is seeking penalties, injunctions and costs in the federal court.

And the alleged cartel sends a troubling message about the economy we rely on.

Barriers to entry for selling suds should be low. The market is not regulated. Humanity has had the power of surfactants for millenia.

The fact that cartel behaviour could crop up in a highly visible, day-to-day market is a threat to the founding principles of free-market economics, and refutes the argument that deregulation of markets prevents cartels.

We cannot leave markets in the hands of business because business has an incentive to make markets less free. Some enthusiasts who take economics 101 think the models were built to describe the real world and conclude regulation is always bad. The most basic free market theory describes free markets as they should be, not as they are.

The 1994 COAG communique that sets out the reasons for establishing the ACCC set out why competition is important. At that time, government impediments to free markets were as much of a concern thanascartels.

“The Council agreed that higher productivity levels were essential to Australia’s growth and competitiveness. Competition is a key stimulus to productivity improvement”

The role of competition is as important as ever, even if the threats to it are different. So even if the ACCC is imperfect, [this alleged cartel was allegedly set up in 2008], it is crucial if we are to retain trust in our economy. Recent proposals to abolish the ACCC are dangerous.

In a national press club address in March 2013, ACCC chairman Rod Sims drew on two Adam Smith quotes to illustrate the role of the ACCC.

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self interest.”

and

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

It is a pleasing sign the ACCC has as much of an eye on the second concern as the first.

Published by

thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s