According to Professor Arnoud Boot, the discussion of the so-called inflation grab – the disproportionate increase in prices compared to inflation – can be linked to the data from PostNL. “You suggest that catch inflation occurs more in a concentrated market, and then you immediately look at PostNL, of course.”
According to Boot, the Dutch postal service has a monopoly on letters. And that monopoly means PostNL can set high prices, Boot says. “Grab inflation means you keep getting price increases due to certain circumstances,” he says. “And PostNL’s monopoly ensures that they can keep prices at an absolutely high level – a level that the consumer can tolerate.”
“PostNL’s monopoly ensures that they can keep prices at an absolutely high level”
As a result, a company like PostNL has high margins and often doesn’t have to pass on cost increases immediately when they occur. “After all, the price was already high,” says Boot.
Declining earnings
Boot therefore partially agrees with Mathijs Bouman’s article today in the Financieele Dagblad, in which he states that «the monopolist has set up his pricing policy in such a way that the highest possible price is extorted from the consumer» and that «to too much In case of enthusiastic transfer of the increase in costs, there will be a decrease in the optimal profit’. He thinks Bouman is wrong on one level. “Just like the Central Planning Bureau,” he continues. “If there’s competition while you have no margin, and so you have to pass on any cost increases, that means you won’t raise prices in a concentrated market with no competition.”
And that very logic is wrong, says Boot. Because when there is uncertainty about prices, the consumer is very easily deceived, he says. “And it’s the companies that have market power that can command higher prices,” Boot continues. “And the consumer doesn’t notice it among all the hundreds of products.”
Consumer education
According to Boot, this ensures that individual suppliers gain market power with regards to their products in the supermarket, “and can then fit in the middle,” he explains.
The defense that good information should be provided to the consumer and that any price increase should be announced is therefore flawed, according to Boot. “Because that’s when so-called dynamic intuition comes into play,” he continues. “This insight says that if you inform consumers about price increases, it will actually become easier for companies to work together in a concentrated market.”
Signals
After all, companies give each other signals, he explains. “Then they literally indicate how much the prices will go up, which the other party can then adjust to,” says Boot. ‘As soon as there are three suppliers in a relatively concentrated market, it’s in their best interest not to compete fiercely. So they don’t make margin. So they have an interest in price agreements.’
And while forming a cartel is illegal, Boot argues that it is. “Just look at the petrol pump,” he concludes. They charge the same price on both sides of the highway. This is not a deal if they are different companies, but you just have to look across the street to know what price to charge. And if you lower that cent, you know the competitor will respond.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
