The mystique of fixed price

| Updated: October 23, 2017 12:23:08

The mystique of fixed price

Some policymakers compel grocery shop-owners to hang lists of fixed prices of items that are sold. But those fixed prices do not remain fixed; these are almost daily changed. In other cases, like auto-rickshaw fares, we see metres telling the riders what the rental charge will be as per the distance the auto-rickshaws cover. Here, too, the per kilometre fare charges do not remain fixed; they get changed with the change in fuel prices. The other day this writer saw, in a rare case, paddled rickshaws hanging a chart of fares relating to per kilometre the passengers are to pay. These charges or the fares also get changed when the rickshaw-pullers see changes in prices elsewhere in the economy. In fact, no price is fixed. The price can remain fixed for a while at best, but over time every price is changing. 
Why do the people want a fixed price? Because, they think they would win in a fixed price regime. But fixed price is no good in most cases. There are cases where fixed prices deceive consumers more than variable prices. Some shopkeepers hang charts only to tell that their items are sold at fixed prices. But behind many of such fixed-price notices, there is a hidden objective of charging consumers more prices by simply tricking them to believe the shop-keepers are honest. 
Again, there are notices of discount sales by many shopkeepers or brand owners. They say prices are reduced by more than half as a clearance sale. The consumers believe in such advertisements and flock, in large numbers, to these shops. But the reality is that these shops or brand owners put out these types of ads a number of times per year and their clearance sales are never finished. In fact, this is nothing but a wicked way of luring the potential buyers to believe that something is really going cheap. These advertisements also mention what the previous prices were and what the present prices are. But in reality, what discount sellers do is that they mark the previous prices and then quote discount prices compared to old prices simply to trick the consumers to buy their items at the so-called discount prices.
Now, against these types of cheating over fixing of prices, do the consumers win? Rarely. Also, in a bargain regime, do the buyers win? Here, too, the likelihood is that the buyers will lose as they do not know the bottom prices of the items they are to buy. In a bargaining situation, sellers win more as they know the cost prices of their goods while the buyers do not know the same. 
In Bangladesh's gold market, the shopkeepers' profiteering is going on for long under everyone's eyes. Here, the so-called gold ornaments are not of gold when compared to international standards. This is understood more when the buyers go back to the gold shops to sell their purchased gold. They hardly get half of the value they paid for. In Bangladesh, gold market is not open; the wealthy people cannot buy and hold gold bars for investment purposes. In the absence of a formal gold market in the country, the gold ornament sellers take the opportunity of charging any price they like. 
The gold ornament shop owners' associations fix up the prices of ornaments and nobody questions their decisions. But the prices fixed up by the gold or ornament traders are well above the international prices of gold. In a fixed price regime, the forces of demand and supply have little role to play in pricing goods and services.
Bangladesh has made a mistake by refusing to open its gold and gem markets for investment. Taking advantage of the vacuum created by restrictions on gold and gem holdings by the rich people of the country, the smugglers are found to be active in gold trade. 
The regime of fixed price can work in the state-supplied utilities. In a private sector monopoly, the administered or regulated price can work also, but in competitive sectors, the regulatory authorities should not try to introduce a fixed price regime. 
Interests of the consumers are better protected if markets are competitive. All over the world, regulatory authorities see how best they can create competition in the economy. 
The writer is Professor of Economics, University of Dhaka.
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