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Thursday, 4 July 2013

Price Controls or Label Control?

Luapula Minister Benson Kapaya recently said that Government plans to re-introduce price controllers to prevent "exploitation of Zambian citizens by the business community". Kapaya says shops and other service providers would soon be mandated to display their prices to enable the price controllers to check if they are in conformity with prevailing business conditions.

This policy needs to be fully explained. Kapaya is clearly the wrong person to announce such policies. It should come from Chikwanda. But that does not mean Kapaya is dreaming. He may have heard it "half baked" from Chikwanda.

The real question is what Kapaya means by "price controllers". If by "price controllers" he means inspectors that ensure clear and correct price labelling then that is fine. The consumer and competition authority has a mandate to ensure that firms follow correct labelling to aid consumer purchasing decisions. Enforcing that is quite difficult. Random monitoring would help.

If on the other hand Kapaya means "price controls", as the media seems to believe, then the issue comes down to the precise policy rationale and scope. Price controls in remote areas are not actually a bad idea because in remote areas some firms wield significant monopolistic power. So some form of price regulation for some goods or services should never be ruled out. This practise is common around the world actually.

But clearly such controls must be the last resort and are only advisable where the market can only thrive and deliver cheaper services or goods if it is dominated by one producer ("natural monopolies") . It is economic folly to focus on price controls everywhere when the answer is introducing greater competition by reducing the cost of doing business.

Chola Mukanga | Economist | Writer
Copyright © Zambian Economist 2013

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