Price monitoring: Possible way to combat price hike | The Daily Star
12:00 AM, February 02, 2008 / LAST MODIFIED: 12:00 AM, February 02, 2008

Price monitoring: Possible way to combat price hike

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Recently, the price of rice and edible oil spiraled out of affordability of the low-income people of Bangladesh and forced them to retrench their consumption bundle significantly. This price hike has drawn the attention of the government, economists and think tanks of the country to reach to the consensus about the causes working behind and to shield the protection of vulnerable consumer rights situation in the country.
Causes of price hike
The Centre for Policy Dialogue in their recent review of Bangladesh economy stated that low levels of production in the domestic market due to the flood and cyclone (Sidr), rising prices in the international markets and supply disruption were the major instigating forces behind high inflationary trend. Moreover, while the declaration of export restriction imposed by some countries came in public, the importers, ware house owners and rice millers hoarded rice and paddy, as reported by the national dailies of the country, has also been a major cause of this hike.
Government initiatives
To face this price hike, government has undertaken open market sale (OPS) operation which has not been so much successful to decrease price significantly. Simultaneously, the joint forces price monitoring by checking the receipt of the purchase from wholesale market is going on in the retail market. In a row of undertaking price control measures, recently commerce ministry holding a meeting of topflight country economists and head of government offices came up with three recommendations: building a system of information and market forecasting, letting the market forces operate naturally and target-oriented programmes for the ultra-poor based on free feeding for a time as well as food for work.
Effectiveness of retail market monitoring
From the economic point of view, in a country like Bangladesh, where marketing process is in operation through several steps, monitoring the retailer is difficult to come out successful for two reasons. Firstly, it cannot check the pricing of the original producer/importer and secondly, the widespread price monitoring in the retail market can arouse apprehension of price hike in the mind of the general people which will induce them to buy more for future ultimately leading to an inflationary pressure in the market. In economics, this is termed as expectation.
Market economy and price mechanism
Theoretically, under market economy, market forces, mainly demand and supply, fix the price to clear the commodities of the market. But, the market is generally amenable to distortion because of the profit maximisation motive of the producers. The theory of economics says, if a few firms gain market power to influence price, they generally form a cartel (more or less like syndicate) and maximises profit through price and production fixing.
The WTO's active initiatives under consecutive agreements and the urge of enjoying benefits of globalisation have provoked the developing countries including Bangladesh to decrease the tariff on imported goods in stepping towards open economy. This open economy can lead to the diversity and abundance of imported goods under the realm of free trade. But only free trade can never ensure fair trade as the forces of market economy can sometimes be distorted by the importers if they are not properly monitored.
Institutional setback
Bangladesh has been facing a huge institutional setback in the price control mechanism while most of the advanced economies of the world which had been following market economy for a long time, have set strong institutions to monitor market mechanism and repaired it when necessary. The absence of strong institutions literally encourages the giant producers/importers to enhance the price level fraudulently which has been possible by making cartel (syndicate) or hoarding. In the cartel (syndicate), a group of producers set the prices and quantities for each of them to influence the market prices. But, Bangladesh has not yet any distinct institutions to address this sort of anomaly which is seriously jeopardising the welfare of consumers.
Federal Trade Commission in the USA
In the USA, which is the proponent of market economy and free trade, the Federal Trade Commission has been closely scrutinising the market mechanism since 1914 which results in steady price level in the market. The Federal Trade Commission Act of 1914 established this bipartisan body of five members appointed by the President of the United States for seven year terms. This Commission was authorized to issue Cease and Desist orders (the administrative measure aimed at a prompt elimination of illegal acts) to large corporations to curb unfair trade practices.
The Federal Trade Commission Act along with some other laws has empowered the commission with the aim of (a) preventing unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seeking monetary redress and other relief for conduct injurious to consumers; (c) prescribing trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conducting investigations relating to the organisation, business, practices, and management of entities engaged in commerce; and (e) making reports and legislative recommendations to Congress.
Trade commissions in other countries
Japan has formed a fair trade commission in 1947 to protect their consumers from those anomalies. International consumer rights protection council along with consumer court has protected the Indian consumers from the frauds emerged from market mechanism. Such kind of trade commission also looms in Australia, Canada, Korea, Italy, Belgium, Hungary, Israel and in many other countries of the world.
Anti Trust Law
The legal structure governing the monitoring of the industry and the price mechanism in the market is called antitrust law which is prevalent in most of the countries of the world. The word trust reflects the spirit of the laws aiming at any form of organisation, trust, communication and contract among firms that would impede competition. There are two methods of courts ruling in antitrust cases: the per se rule and the rule of reason. In other words, court's ruling consist of two major categories: (a) business behaviour that is illegal per se, and (b) business behaviour that is judged by standards of the party's intent or the effect the behaviour is likely to have. The per se rule is followed in the trial of the case of price fixing by forming cartel or groups. The per se rule is very astringent as to have a particular behaviour declared illegal per se, the plaintiff needs only to prove that it is occurred. It is worth mentioning that many firms of those countries are to be fined by the commission for their involvement in illegal activities including price fixing. Two such incidences among them have been mentioned here.
Two incidence of price fixing
The Wall Street Journal of February 21, 2007 issue has reported that South Korea's Free Trade Commission fined nine domestic petrochemical companies a combined 105.1 billion won ($112.2 million) for colluding to fix the prices of petrochemical products for more than 10 years. Those 10 companies account for 85 percent of the country's synthetic resins market. The commission didn't penalise one of the companies involved in the price collusion because of its contribution to the commission's investigation.
The New York Times of May 21, 1999 reported, every year around August or September, the senior executives from the world's largest producers of vitamins would gather clandestinely for a few days at a European hotel or an executive's home. The meeting set production quotas, prices and distribution of vitamin ingredients in the markets. When this cartel was proved in the Federal court of Dallas, the companies involved with this cartel had to pay fine of millions of US dollar.
Leniency program of trade commission
How the price conspiracy can be detected is a challenging responsibility of those trade commissions. One most successful method for the detection of the anomalies is the leniency programme under which the individual firms are asked individually and clandestinely about its involvement in the price conspiracy and tempted to confess first to enjoy exemption from the huge fine. This is simply the prisoner's dilemma technique of the game theory which is a widely prevalent device to entice the criminal for confession.
Conclusion
The recent price hike reminds us that the market is not always plagued by a lack of supply; rather some unscrupulous traders are involved with price fixing mechanism. In order to bring them to justice and restoring normalcy in market prices, Bangladesh needs to build up an institution like trade commission as in other countries. Several acts for the protection of consumer rights like anti trust law, which can be implemented by the commission, need to be enacted immediately. A strong and efficient institution like trade commission with updated database, capability of prompt investigation and collaborative attitude with consumers will contribute to curb the price fixing mechanism which has already been successful in many countries of the world. Bangladesh should go for establishing such institution as early as possible so that the consumers' rights of the country cannot be marred further.

Shaikh Moniruzzaman, a member of BCS (Administration) cadre, is currently on higher study in Japan.

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