Implement Competition Law Before Removing Price Controls

The new Minister of Domestic Trade and Consumer Affairs, Datuk Shahrir Samad, is to be lauded for boldly suggesting the removal of price controls for essential goods. Whilst a casual reading of any economics textbook may initially suggests that market forces can lead to efficient allocation of resources, such argument are more nuanced. The same textbook will also suggests that markets are often imperfect and can sometimes fail, particularly so in developing countries. Even though the removal of price controls may temporarily increase prices, it is hoped that this may ultimately lead to an increase of supply with concomitant reduction in prices, thus benefiting consumers. However, this scenario may not come to pass in markets that are dominated by a few firms intent to using their market power to extract higher prices from consumers. In fact, a number of such cases have been reported in the media in the past. Recent examples in the country include beef cartel and price fixing in ferry services. In each instance, the government has struggled to rectify such problems through the use of blunt policy instruments such as encouraging more firms to enter such markets through the issuance of more licenses. In many countries, such problems have been more effectively dealt with the implementation and enforcement of a competition law which essentially prohibits anti-competitive business practices such as price fixing and collusive bidding in tenders. Thus, the existence of a competition law is absolutely essential if consumers are to benefit from any removal of price controls in the future.