DOMESTIC Trade and Consumer Affairs Minister Datuk Shahrir Samad is to be lauded for suggesting the removal of price controls for essential goods.

While economics textbooks may suggest that market forces can lead to efficient allocation of resources, such arguments are more nuanced. The same textbooks will also suggest that markets can sometimes fail, particularly in developing countries.

Even though the removal of price controls may temporarily increase prices, this may lead to an increase in supply, with a concomitant reduction in prices, thus benefiting consumers.

However, this scenario may not come to pass in markets that are dominated by a few firms intent on using their market power to extract higher prices from consumers.

Recent examples in the country include the beef cartel and price fixing in ferry services.

The government struggled to rectify the problems through the use of blunt policy instruments such as encouraging more firms to enter such markets through the issuance of more licences.

In many countries, such problems have been effectively dealt with by implementing and enforcing a competition law which prohibits anti-competitive business practices such as price fixing and collusive bidding in tenders.

Thus, a competition law is essential if consumers are to benefit from any removal of price controls.

CASSEY LEE, Petaling Jaya

Source: NST – March 28, 2008