For tens of years businesses in Bahrain made their money not only because of their industriousness or creativity, there obviously was some measure of those to be sure, but also because of monopolistic practices that enriched them without them lifting a finger.
The story was until recently that a business can sign an exclusive agreement with a supplier and based on that agreement, the business would register that agreement with the Ministry of Commerce which enforces it by not allowing anyone in Bahrain to import any goods from that supplier except via the local exclusive trader. That was inforced at the Customs where they would not allow anyone but the “agent” to clear the goods for entry into the country. The ony way around that was for the unfortunate importer (or is it impostor?) to go cap in hand to the exclusive agent and get a letter of no objection issued to him so that he can clear the goods. The cost of that letter is traditionally 5% of the value of that shipment! Of course if that importer was a competitor, the no objection certificate would be withheld and the goods would just rot at the customs’ sheds. No force of law could be exercised to force the exclusive agent to release that all important letter.
The result of those practices, which thanks to the WTO have now been abolished and no “exclusivity” could be registered with the Ministry of Commerce – or at least shouldn’t, gave the traders a free hand in fixing prices and services. If your purchase venue is restricted and you wanted to buy that particular radio, you have to pay the price applied by the trader, ragardless of its fairness in the world market.
You would think that a consumer would have a choice, if he won’t pay the price asked for radio A, then surely he could go to another store and buy radio B for less? Of course he could do just that; however, these “businesses” also “own” just about every other competing brand! And yes, all were on exclusive contracts. Therefore what happened is that prices of all of those competing goods were about the same across product classes.
Does the phrase “robber barrons” come to mind yet?
That whole practice robbed Bahrain of its competitiveness in the world market; it just got the rich to be ridiculously rich while only the most intrepid would dare break in to the trading market, and only in very limited vertical or low-level markets. This is one of the major reasons for Dubai’s early success. Open markets there sucked the small Bahraini trader in, they go in the morning and fill up containers with goods bought from Dubai and then find a way to bring those goods into Bahrain, and some did come through. Same products, cheaper prices: where would you think a consumer would go?
Now at least with no exclusivity and the change in global market dynamics, there is virtually no price difference between Bahrain and Dubai; ironically, some prices in Bahrain are actually cheaper than Dubai now!
Not so for cooked food it seems.
A new business class has come up in Bahrain maybe due to new prosperity experienced recently where huge kitchens sprung up all over the island specialising in cooking army-sized traditional meals like ghouzy, machboos, mandi, biryani and others. That alleviated the horrendous chore of cooking huge quantities of these meals for celebrations like Eid or weddings, and of course reduced the amount of fires and accidents associated with them in homes.
From the picture you get a glimpse of the size of kitchens and their success as well. What you will also notice in this particular kitchen is that they don’t believe in safety nor hygiene either, but that’s beside the point of this article. The point is that an employee of the Abdulameer kitchen stated that:
[arabic]وأشار إلى «أنيوم أمس الأول (الاثنين) كانآخر موعد لتقديم طلبات الولائم»، لاÙ?تا إلى «وجود اتØÂÂاد مع كبار المطابخ Ù?يالبØÂÂرينلتثبيت أسعار الولائم[/arabic]
translation: he stated that last Monday was the last day for accepting orders for meals, and also stated that there is an agreement between kitchens to fix prices
Al-Wasat
There you have it. In black and white. Is it time to get the government and the consumer protection society to come in and do something about this? Of course it is. And yes, of course it’s small potatoes, but in a free market economy which is what we want to build ourselves as, this situation could not and should not be tolerated.
A monopoly commission should surely be established.
Yet another thing for the EDB to get done!
Comments
Kitchen monopolies
Mahmood, I think there is quite a siginificant difference between the legally-enforced monopolies of the “agencies” described at the start of your post, and the private cartel of kitchens described at the end.
In the former case, the government prevented any one from competing with the agency, regardless of the price or efficiency offered. In the latter, there is nothing that [i]directly[/i] prevents a competitor from entering the market separate from the cartel and selling at a lower price — there is no [i]legal[/i] obligation for all kitchens to participate in the cartel.
Of course, one can make the argument that cartels have a tendency behave in an anti-competitive manner (which has led to the creation of antitrust legislation in many countries), but this is quite different from the “agencies” which are [i]inherently[/i] anti-competitive. To claim that a cartel is acting anti-competitively would require further investigation to find out if they are using their size and influence to bully their competitors, potential market entrants, suppliers, or customers.
But I do agree with you that the EDB should start thinking about legislation against anti-competitive (not anti-cartel) practices.
— chan’ad
Re: Kitchen monopolies
Chan’ad, 6 of this and half a dozen of the other. Price fixing is price fixing is price fixing regardless of how it’s done! No need to get emotional because you perceive that the kitchens are from the “downtrodden” side. If that’s what you infer?
Kitchen monopolies
The problem with any cartel price fixing is that you have to keep each other in line. Just ask OPEC. Once the competition starts heating up, someone will break and the whole thing will collapse. They cannot keep competitors out so the number of providers will increase and increase the likelihood of someone breaking the price fixing model. Price fixing works best in concert with regulatory restriction.
Re(1): Kitchen monopolies
[quote]Price fixing is price fixing is price fixing regardless of how it’s done![/quote]
Price fixing is not price fixing if a cartel is not able to fix the price for [i]everyone[/i]. It’s not price fixing if a competitor can enter the market and sell at a price lower than that fixed by the cartel.
It’s only price fixing if the cartel uses its size and influence to bully around the other market players.
[quote]No need to get emotional because you perceive that the kitchens are from the “downtrodden” side. If that’s what you infer?[/quote]
??? You assume incorrectly. I just think that we should be very careful in deciding when a govt should or shouldn’t be allowed to interfere in a free market. I’ve been emotional on this topic ever since I did my GCSE Econ coursework on this topic 🙂
Take care!
Re(2): Kitchen monopolies
heh, now you’re getting emotional!
You assume of course that this is not being done by the “big” kitchens against the smaller entrants to the market? Let’s not take a side on this one, shall we? My contention with this issue is that someone blatantly stating to the press that there is an agreement to keep prices fixed. Surely, that should be illegal as it is highly uncompetitive, hence, should be tackled by at least the consumer protection society.
Re(3): Kitchen monopolies
[quote]You assume of course that this is not being done by the “big” kitchens against the smaller entrants to the market? Let’s not take a side on this one, shall we?[/quote]
I didn’t assume anything. I just think that we should be provided with some evidence that the kitchen cartel is bullying the market before we conclude that its presence inhibits free competition.
My only point is that cartels aren’t inherently bad — it is the way in which some (not all) of them behave that is bad, and against which legislation should be made.
[quote]heh, now you’re getting emotional![/quote]
This is nothing… if you want to see “emotional” then you should read my GCSE econ coursework! 🙂
— chan’ad
Kitchen monopolies
Dear Mahmood,
What an interesting world we live in. This article you posted reminds me of the lifting of Prohibition in the United States during the 30’s. The ‘Do Gooders’
thought they would stop the abuse of alcohol (Pot) by making it illegal. What happened was that they created a false economy that fed the likes of Al Capone and organised crime.
My suggestion to the legislators of Bahrain and other places is that they study history and learn what works and what is a waste of time. AND/OR maybe come up with a new idea all together.
You are not tied for first place amid blogs in Bahrain for nothing, brother.
Riz Wyman
Purr…
Barr.
Nord America
PS Legalise, Regulate & Tax, don’t judge use by abuse.
.
Re: Kitchen monopolies
As an abstract matter (meaning without regard to special circumstances that may be involved in Bahrain), I agree with Mahmood’s original or prior statement that price fixing is price fixing. Perhaps my beliefs are affected by the fact that that is the system legislated here where I live.
[quote]Price-fixing agreements may or may not be aimed at complete elimination of price competition. The group making those agreements may or may not have power to control the market. But the fact that the group cannot control the market prices does not necessarily mean that the agreement as to prices has no utility to the members of the combination. The effectiveness of price-fixing agreements is dependent on many factors, such as competitive tactics, position in the industry, the formula underlying pricing policies. Whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy. [/quote]
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225-226 (1940).
[quote]In sum, price-fixing cartels are condemned per se because the conduct is tempting to businessmen but very dangerous to society. The conceivable social benefits are few in principle, small in magnitude, speculative in occurrence, and always premised on the existence of price-fixing power which is likely to be exercised adversely to the public. Moreover, toleration implies a burden of continuous supervision for which the courts consider themselves ill-suited. And even if power is usually established while any defenses are not, litigation will be complicated, condemnation delayed, would be price-fixers encouraged to hope for escape, and criminal punishment less justified. Deterrence of a generally pernicious practice would be weakened. The key points are the first two. Without them, there is no justification for categorical condemnation.[/quote]
7 P. Areeda, Antitrust Law ¶ 1509, pp. 412-413 (1986).
Re(1): Kitchen monopolies
Precisely! Whether moral or otherwise, once a price is fixed, it is the community that pays the price in more ways than one, as that practice is logically and inherently anti-competitive. I don’t have the benefit of formal economic education, but logically justifying either position does not make sense.
Re(4): Kitchen monopolies
I can’t understand how you regard cartels are good.
To me (thinking without GCSE help, we only had ‘O’ levels in my day!) any entity that fixed prices, high or low, would generate uncompetitive markets. Add to that the fact that people will always try to find a way around restrictions and you will see that some do break agreed rules and sell below the agreed price or produce over-quota, so they don’t work that well. Therefore a cartel is a shaky honour-bound system that doesn’t work practically. True. But as it is a tool that deters competition, it should be legislated against. Unless of course the cartel in question is in liaison to reduce prices and keep them from rising, then that’s a good thing, sure, but again human nature would not allow this to happen I don’t think.
We do have price fixing in Bahrain which has turned around the bit it in the butt with the recent Heritage report; fixed prices at the petrol pump (thought there is only one vendor there, which is yet another problem), and various compensated prices in foodstuff and other goods and services. I know that should these be liberalised, some social strife will occur – maybe even violent – but there is no escape any more from the fact that all uncompetitive routes will ultimately be abolished naturally or through legislation.
Kitchen monopolies
Mahmood,
I wanted to raise a similar point: The government must stay out of business, I think we can agree on that.
And so if business is creating a cartel, then so be it. You can’t have your cake and eat it too.
Cartels do suffer from the “prisoner’s dilemna”, in that any one business is never sure that the other side is holding up his side of the bargain, and so it is really a house of cards. But that is a side issue, and really irrelevant to this point.
When we say government must stay out of business, what we are really saying, is that government must stay out of [i]consensual[/i] relationships between people. And if a group of people wants to fix prices among themselves, then so be it! 🙂 They will always be subject to supply and demand, which make or break markets depending on what the cosumer wants: What we want.
-Ibn
Kitchen monopolies
Okay I understand the difference between the two issues as raised by Chan’ad and Ibn. So monopolistic endeavours are different than cartels whereby cartels are those entities voluntarily created by a group of businesses for the purpose of coordinating pricing and production issues, while monopolistic ones are those entities aided and abetted by government in protectionism.
Am I on the right track now?
Kitchen monopolies
Mahmood, precisely! 😀
And the reason cartels are really doomed to fail EVEN if they somehow wiggle out of the “prisoner’s dilemna”, is because no one can block entry into the market by force. (aka, no one with a badge is stopping someone from entering the market).
Its almost an exponential mathematical relationship: The more a cartel raises prices above market values, the more exponentially higher the probability it becomes that one business breaks loose from the cartel, in order to rake in the unimaginable profits yielded by selling at lower prices than that of the cartel’s.
It’s self-correcting.
🙂
-Ibn
Re: Kitchen monopolies
And how do you keep each other in line? What I see happen so often in the UAE, until very recently, is that it is the government that helps the cartels enforce their agreements. Whether misguided or nefarious the consequences of such government policy are the same.