Thou shalt not collude on pricing

?  ?

Opinion / Raymond Zhou

Thou shalt not collude on pricing

By Raymond Zhou (China Daily)
Updated: 2007-08-20 07:03

Thou shalt not collude on pricing, the regulatory god said unto the Moses
of industries in most countries, including China. But the instant noodle
cabal either did not hear it or turned a deaf ear.

In late July, noodle makers joined forces in raising prices by about 20
percent, and as much as 40 percent for some products.

After less than three weeks of regulatory pressure, media assailing and
public discontent, the industry backed down, apologized and initiated an
across-the-board price cut.

Is this a triumph of consumer rights and regulatory protection?

Yes ... hmm maybe.

Instant noodle is more than the Chinese equivalent of the Western
television dinner. The busy or lazy depend on it; the nation's gigantic
floating population is buoyed by it; millions of train passengers slurp
so many noodle cups that, if not muffled by the roaring locomotive, the
collective giant sucking sound might be interpreted by space aliens as
the whistle of earthlings.

The price upsurge was not unreasonable. Starting from late last year,
cooking oil, a main ingredient, has been sizzling in price. Farm products
such as flour, pepper and potato have all seen double-digit price growth.
One media report put the average cost increase at 13-20 percent.

In face of shrinking profit, the biggest noodle makers called three
meetings, discussed the situation and reached a consensus that affected
95 percent of the market. From their announcement, it could be viewed
that they were proud of their concerted effort at deflecting a
cost-induced crisis.

As one official put it, they have the right to raise prices, but no right
to do it in accord.

Anyone with a modicum of MBA knowledge would know that. But it seems the
notion that price-fixing was wrong did not occur to any of the
participants, or they would not have trumpeted it.

Why didn't they know that their act would violate business regulations?

One reason could be there had been no such case before - not that there
was no price-fixing before, but no prosecution of such cases.

So, why target the noodle makers? As ubiquitous as the product is, it is
by no means an indispensable food item. There is no danger anybody would
starve from a shortage of instant noodles as people can easily find
substitutes.

The noodle makers are to be blamed in the first place because they did it
with such high exposure that left regulators little choice but to handle
the case by the book.

From another perspective, the noodle makers are really easy to pick on.
Theirs is not a powerful interest group with close ties to the
government. Their product is not so essential as to create a mass panic
if thrust into market upheaval.

In other words, they are the ideal "chickens" to be killed in order to
scare the "monkeys". As a matter of fact, one economist used the same
proverb to describe the nature of this story.

While it is certainly commendable that government agencies are pursuing
violators of antitrust laws, we must go one step further and ask: What if
it is an industry with which the government is financially entangled,
such as the real estate business? What if it is an industry the
government wants to promote and weed out the weaklings? And what if they
all take cues from this case and change the tactics of price collusion
from trade pow-wows to secret tete-a-tetes?

It would help create a healthy business environment if the noodle
precedent is followed by more regular monitoring of the pricing practices
of all industries, especially those that absorb a significant share of
our income.

E-mail: raymondzhou@chinadaily.com.cn

(China Daily 08/20/2007 page4)

Hot Talks

* Should Beida recruit more recommended students?
* Nude women and Peking Opera: pornography or art?
* War in Iraq lost?
* Costa Rica cut ties with Taiwan: Who's next?
* Will China follow USA "way of life"?

Most Commented/Read Stories in 48 Hours

20071122 Extracted From http://www.hellomandarin.net