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Ruinous Consumer Protection - IUF comment 23/2006

Sascha Tamm, IUF

The Federal Economic Ministry wants to avoid "ruinous competition" in the food industry. As reported in the FAZ last week, the Ministry would like to see the sale of food below its purchase price prohibited. This would enact a project of the Coalition Agreement as well as a demand of the Conference of Consumer Protection Ministers. According to the Ministry, "price dumping, which occurs when the value of a product is unfairly priced," should no longer be permitted.


In the last decade, the governmental battle against perceived or actual dumping has grown rapidly in many countries and is being used as another form of protectionism. To what extent the government has the authority to interfere in the pricing schemes of corporations is arguable. However, even if one were to agree that the battle against dumping lies within the purview of the federal government, for the most part, attacked practices of corporations are not even considered dumping by the competition authorities. Generally, the government's real role is to protect uncompetitive companies at the expense of the consumer.  


In this case, the classical reason to support governmental intervention does not apply. There is no danger of a business enterprise forcing all of its competitors out of the market and then abusing its favorable market position. Even competitors from abroad who might be receiving subsidies are not relevant in this regard.  


Moreover, a new argument comes into play; namely, the consumer needs to be educated. Now the consumer is expected to be able to recognize the actual value of food - but at his own expense.  


At the same time, "ruinous" competition should be prevented. However, it is one of the most important means of competition whereby wealth is increased by ruining some corporations and creating space for others to fill the gap. This applies specifically to a country such as Germany where more retail space is allocated per capita than in most industrialized countries. Suffice it to say, there will not be a lack of shopping opportunities in the near future.  


However, the real concern is the zealousness with which politicians use to play the role of educator of the citizen. Politicians would like to turn their citizens into "sensible consumers." In other words, it is more important that the consumer behave in a manner that will please certain politicians and lobbyists than it is for the consumer to make informed decisions.  





  • Sascha Tamm, IUF


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