Consumer choices keeping prices high

Vouliagmenis Avenue in Athens is an interesting phenomenon for economists to study. It is the only road that comes to mind where neighboring gas stations can sell fuel at a 7-cent difference and not go bust. But it is the choices of the consumers who reward those who practice profiteering and create the motive for those selling cheaper gas to hike their prices too. It is quite simple. When two gas stations sell the same product at different prices and the more pricey of the two fails to see any drop in turnover, this provides the more reasonable trader with a very good reason to raise his prices. Gas station owners are not stupid, they are businessmen. When someone hands them extra money on a plate, they are quite simply going to take it. The same thing is happening in the milk market. We all now know that we have the most expensive milk in Europe at 1.20 euros per liter. We complained about this and rightly so. We had suspected that some evil cartel was responsible for keeping prices high. This is quite likely to be true. The strange thing is that in this overpriced milk market, a new player has managed to clinch 17 percent of the market share by selling at an even higher price – 1.40 euro per liter. But consumers have failed to punish this profiteering. Some attribute the increased sales of expensive milk to the high quality of the product. This may be true. But surely those who sell their milk at 1.20 euros per liter make similar claims, insisting that their logo guarantees better quality than cheaper brands. The media have jumped upon this issue and created widespread confusion. But it is quite clear what has actually happened. There is evidence of harmonized practices by three major dairy firms. Whether these exist or not will be determined by a Competition Commission probe that is currently under way and whose report is due in the next few days. If our suspicions are confirmed, then we have every legal recourse to pursue the punishment of any transgressors. The possible existence of a cartel, however, does not justify the tendency of 75 percent of consumers to buy milk that costs 1.20 euros and upward.