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Competition is good for us all

05 May

You’ll have noticed that people aren’t really spending money as they used to? People are still spending money, but on necessities rather than luxuries. This is all the fault of the credit crunch apparently although the Eurozone seems to be making things worse and making it more difficult for people to see light at the end of the tunnel. It’s important to note, though, that Ireland and Portugal look as if they are making some good progress.

Setting aside the “double dip” twins, Cameron and Osborne, efforts at being seen to be “prudent” are there any other issues, which are making things harder than they should be for people living in the UK? Prices are rising, which is in no small part because of silly green policies, which push up energy and regulatory costs. This results in increased prices on almost all products since they have to be transported to markets and delivered to shops and homes.

The pressure on the Bank of England a few months ago and the increasing likelihood of the same pressure returning to increase base rates, was pretty ill considered by a number of commentators mainly from the BBC. Increasing the base rate would increase pressure on households and wider economy budgets making it less likely that spending and investment would happen. It would also be a hard pill for a lot of people to swallow given that “quantative easing”, which the Bank of England has been so very keen on, is a significant driver of inflation.

It is also apparent that things have gone very awry in the UK consumer market place. Whilst competition still exists it is clearly not as ferocious as it was and as it should be. Healthy competition is necessary to ensure value for money. A monopoly is a very bad thing as it significantly reduces value or money. Tesco demonstrates this fairly well.

During Christmas trading last year Tesco judged what it’s approach should be and got it wrong. It was not competitive and the other supermarkets were. People spent their money where they got most for it. Simple. Tesco then report profits lower than expected and embark on making their stores more attractive to shoppers. I don’t know about you but I’m not to bothered about how a supermarket looks I’m more concerned about the prices and the quality of goods. Especially when things are tight.

The economy in the UK has been hi- jacked by a number of large businesses who, for one reason or another, keep prices at a level which allows them to make large profits without the need to indulge in price wars which are harmful to them. Luxury brands have benefitted most from this, which can be seen by the increases in their prices which dwarf current inflation rates.

The Competition Commission and the Office of Fair Trading are there to protect consumers but do they have teeth? How many products do you buy where the prices of alternatives significantly are cheaper or more expensive? Petrol? No. Utilities? No. Food? Well on some but certainly not on all by a long shot.

You will also be aware of the tactics which have been employed by businesses who wish to sell you stuff. They advertise a fairly good percentage reduction and people buy stuff, then a few days later they either have a sale or further reductions and the price go even lower. It’s becoming an art form to recognise the most opportune point at which to buy things. We all take advantage of these price reductions but only if we need them.

Competition between businesses is absolutely vital as a means of reducing inflation. This was demonstrated again by supermarkets who after a prolonged price war a few years ago reduced the price of food across the board. However, inflation is a constant threat especially since we rely partly on overseas suppliers who may have different pressures to deal with. The Double Dip Twins are boxing themselves into a corner since they can’t print money and at the same time have low inflation.

Unless they know something we don’t of course.

Just don’t rely on that being the case however.

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