Monday, March 19, 2007

End the juice and dairy cartel

The UAE Dairy and Juice Association has long used its influence (wasta) to cartelize the market. As a result, prices are higher than they otherwise would be.

At the latest meeting of the cartel they decided to raise prices. The Khaleej Times reports:
ABU DHABI — Prices of canned or fresh juices, milk, yogurt and other dairy products will be hiked by up to 28 per cent this summer.

The new prices will come into effect on April 17 [hmmm - not the summer, but it might feel like it]. A number of dairy companies have started informing supermarkets and groceries about their decision.
“The cost of production as well as distribution has been rising steadily over the past few years and we tried our best to curb it as much as we could,” said a trader dealing in dairy products, justifying the move. He added that since dairy producers’ objective is to provide high quality products to their customers, they have no option but to increase the prices.
Price increases themselves are not evidence of a cartel because prices will rise in a competitive market when costs of production increase. The evidence that there is a cartel attempting to control prices is the agreement on timing of the increases and on the uniformity of the prices increases for particular products. Yes, in competitive market you'd expect prices to increase at about the same time and for prices to resettle at a new uniform rate, but not in such an orderly fashion and certainly not by prior agreement.

It is another question whether the cartel is successful. As indicated in the link in the opening paragraph above, it has been successful in the past perhaps because its influence with the authorities has enabled it to control entry and discipline signatories to the association's price agreements.

In the last year the association has had difficulty enforcing agreements to increase prices both because individual members of the association did not want to abide by the agreement, and because ministries of the government actively opposed the price increases and/or withdrew their role in enforcing the agreements of the cartel.

It is not clear how the Ministry of the Economy will react to this latest agreement. The ministry rules on price increases in a large number of areas and recently has allowed price increases if it sees costs have increased. The more efficient way of making sure that prices are "justified" is to focus the ministry's efforts on creating competitive markets -- by eliminating government regulations which support cartels, exclusive dealerships and otherwise restrict entry of new firms, and by introducing a competitions policy that makes price agreements illegal.

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Anonymous fellow atheist said...

I still don't understand why cartels are a bad thing. Most associations try and agree on a leveled playground when it comes to pricing, so they can instead compete on quality. Well, in theory at least.

11:28 PM  

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