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Home | Wire | Consumers Are Smarter than Bureaucrats Think

Consumers Are Smarter than Bureaucrats Think

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Tags PricesSubjectivism


Despite the name of this government agency, Canada’s Competition Bureau lacks an appreciation of the nature of competition. Moreover, the Bureau’s actions can be seen as an insult to Canadians, as it fails to acknowledge the ability of discriminating consumers to recognize uncompetitive offerings. As the Bureau pretends to be the consumers’ guardian angel, it wastes taxpayers’ dollars on counterproductive activities.

The Hudson’s Bay Company (HBC) operates numerous department stores in Canada. They say they have spent more than US$425,000 and invested more than 6,500 person-hours to produce 37,000 documents in response to the Competition Bureau's complaint made last February. According to The Canadian Press, the Competition Bureau

is suing Hudson’s Bay Co., alleging that the retailer engaged in deceptive pricing practices for four years ...

The Competition Bureau claims HBC misled customers over the prices of mattresses and box springs sold together since at least March 2013 ...

“The regular prices of the sleep sets were so inflated above what the market would bear that sales at the regular price were virtually non-existent,” reads the filing.

HBC listed a Mount Royal tight top queen sleep set at $1,998 and then a sale price of $788 in 2014, for example, but never sold one at the regular price, the agency says.

So, HBC supposedly “engaged in deceptive pricing practices” which the Bureau defines as misleading customers about prices. Nonsense. The Bureau reveals its own bureaucratic idiocy when it contradicts itself by admitting that no sales were made at the inflated price.

Consumers are Wise

Consumers were not misled, as evidenced by their decisions not to buy! Why did they not buy? Because they know the market. They shop around. They have done their homework. They know the prices of the Bay’s competitors. They are well informed. And just as consumers were not misled by a ‘high regular price,’ they also would not eagerly embrace a ‘sale price’ unless they find the price more appealing than the prices of HBC’s competitors.

Though the government would have us believe this is a mortal sin, there is nothing wrong with HBC pricing its products far above the market. That is their right. Remember, they cannot force consumers to buy their products. All transactions rely on mutual consent.

In contrast, we must never forget that the government is the only institution that has the legal power to force consumers to buy things (via taxation and government spending) at outrageous prices.

If anyone at HBC employs physical force to prevent competitors from entering the market, then legal action is justified, but this is not what the Bureau is alleging.

More Bureaucratic Meddling

From the Canadian Press:

The agency also alleges HBC misled consumers by suggesting it was selling its remaining inventory during clearance and end-of-line promotions, which implies the low price is permanent until all remaining inventory is sold. But HBC is alleged to have replenished its inventory during such sales by ordering new sleep sets from manufacturers.

So what? I have seen other retailers do this. It doesn’t matter. Consumers know a genuine sale when they see it, just as they readily detect an inflated price. Consumers are not motivated to buy because of a “sale” or “clearance and end-of-line promotions.” Such advertising may entice them into the store, but they will not be fooled. They will not buy the product if they don’t like the price. And if HBC is replenishing its inventory, that is a clear indication of consumer satisfaction, which is economically beneficial.

In another recent case, “The Competition Bureau is investigating allegations that prices on some merchandise were marked up ahead of the liquidation sales at Sears Canada ...” However, later in the article, we read that “After the sales began, several customers posted pictures to social media suggesting prices had been raised.” More proof that consumers are savvy!

Consider ‘price matching,’ a common practice in many stores. Come to the store with evidence of a lower price offered by a competitor, and the store will match the price. Why do stores do this? I will tell you why, and I hope the bureaucrats are listening. Stores do this because they know consumers compare prices, without any handholding by the government.

Consumers Call the Shots

Consumers are buyers of goods, but they are not at the mercy of sellers. In fact, the reverse is true. Businesses know they operate at the mercy of consumers. Consumers shop elsewhere when businesses fail to satisfy them. That’s why Sears is bankrupt! As Ludwig von Mises wrote in 1944 in Bureaucracy (pp. 20 – 21):

... The real bosses, in the capitalist system of market economy, are the consumers ...

... If the consumers do not buy the goods offered to them, the businessman cannot recover the outlays made. He loses his money. If he fails to adjust his procedure to the wishes of the consumers, he will very soon be removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.

We must have the freedom to associate with whomever we choose, and to enter into voluntary exchanges with these people. Coercive acts are banned. This is the definition of an unhampered market, which is the only path to the highest level of prosperity achievable by humans. If the government really wants to facilitate this prosperity, it must not interfere with these voluntary acts — but take action only when one or more persons uses force to compel one or more other persons to complete an exchange to which they did not voluntarily consent. The government has violated this principle in its coercive dealings with HBC and Sears, thereby limiting the freedom of individuals to interact with one another, which limits economic growth.

It is truly mindboggling that government bureaucrats think consumers are helpless without their paternal guidance. On the other hand, maybe this is not what the bureaucrats think at all. Perhaps they are fully aware their activities add no economic value — that their activities are actually counterproductive. For example, as a consequence of the Bureau’s activity, some resources at HBC have been allocated to the investigation, whereas these resources could have been more efficiently allocated elsewhere in the company.

Who Benefits from this Nonsense?

According to the government, the purpose of the Competition Act “is to maintain and encourage competition in Canada in order to,” in part, “provide consumers with competitive prices and product choices.” In this regard, as we have seen, consumers do not benefit from the government’s intervention in the market.

Who does benefit?

The government insists that consumer welfare is a high priority, but this is nothing more than propaganda intended to justify taxing the public to support a counterproductive bureaucracy. Money (taxes) is taken out of the pockets of productive workers and placed into the pockets of unproductive bureaucrats. The government benefits as the economy suffers. The moral solution would be to lower taxes and dissolve the bureaucracy, thereby forcing the bureaucrats to seek employment in the productive economy in order to earn a living.

Sadly, the parasitic nature of the bureaucracy doesn’t stop with coercive taxation:

The bureau said it wants HBC to stop such practices and pay an administrative monetary penalty of an unspecified amount. For a first occurrence by a corporation, that can be up to $10 million, said Marie-France Faucher, a bureau spokeswoman.

Thus, we have a distinct possibility of more benefits flowing to the bureaucracy at the expense of productive economic activity.

Perhaps this is one of the many reasons Canadians have so little trust in their government.

Following a 23-year career in the Canadian financial industry, Lee Friday has spent many years studying economics, politics, and social issues. He operates a news site at www.LondonNews1.com

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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