thenextwave

The trouble with competition economists

Posted in business, economics, reports, retail, trends by thenextwavefutures on 2 November, 2007

The news that the UK Competition Competition has broadly – I’m paraphrasing – found, at least provisionally, that everything is pretty much OK in the world of Britain’s supermarkets reminds me of the trouble with competition economists: they know the price of everything and the value of nothing.

It’s an easy quip, I know, but there’s a serious point underneath it. Competition economics is a pretty narrow discipline, dedicated to the notion that it is possible to iron out the imperfections of markets. This means that they tend to focus on price and choice, and through a very narrow lens.

What’s interesting about this week’s report is that – according the new economics foundation – the Competition Commission has had its remit extended so that it can consider a wider range of issues when it looks at competition issues. nef suggests that the Commission has “taken an over-simplistic view of consumer interest in terms of price, when the Enterprise Act lays down quality, choice and innovation as considerations to be protected – both today and into the future.” (The one word that is evidently missing from this list, and would make the Act more robust, is diversity.)

The wider point is that many of the social and public outcomes which the government is trying to achieve – whether reducing obesity or improving public health or increasing community cohesion or social and economic inclusion – require the supermarkets to have less influence, either on shopping or on planning. However, the current deep-rooted market models which underpin regulation simply don’t take those external costs into account. (And not just in the Competition Commission; large parts of the Department of BERR, formerly the DTI, suffer the same affliction). As nef Policy Director Andrew Simms puts it:

“[People] want a variety of genuine local shops, small shops and markets – the kind of enterprises that create economically vibrant local communities and provide the social glue that holds neighbourhoods together. But these enterprises will increasingly go to the wall if the Commission’s key proposals go ahead.”

Reading the nef material, it seems possible that there will be a legal challenge to the Commission’s findings if they are not hardened before they are made final. And The Telegraph‘s view was that this week’s provisional report was a sighting shot to see what the reponse was like.

One observation I’d make is that every time I talk to someone who is a supplier to the supermarket, or knows suppliers (and this is true at all levels of scale) you hear stories which are certainly unethical and can only be described as the straight exercise of dominant market power. The qualitative evidence is strong, even if the Commission, for obvious reasons, finds it impossible to quantify, or to get suppliers to talk on the record. But when the views expressed by public bodies are that distant from people’s experience, their credibility inevitably starts to suffer.

Meanwhile, in Norfolk, Sheringham’s councillors have once more – and against the odds – voted against allowing Tesco to develop in the town, broadly for most of the reasons which the Competition Commission found to be baseless (the councillors didn’t want to destroy the commercial life of the town to benefit an out of town site). The research is broadly on their side (opens FoE report in pdf), and for obvious reasons; money which passes across the counter of a locally owned shop is more likely to stay in the local economy than money paid to an international company with shareholders and an expensive international expansion programme to support. Tesco will no doubt be back. But it’s also worth noting that they seem to have more problems with the local planning system than they used to have, at least to judge from the Tescopoly site.

Update: There’s a good summary of the Commission’s provisional findings, and responses to it, by Richard Wachman in Sunday’s Observer.

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