THE HAPPY MEDIUM

Evening Post, Volume CXIII, Issue 127, 2 June 1927, Page 12

THE HAPPY MEDIUM

PRICE MAINTENANCE

SYSTEM OF GOOD AND BAD

Some aspects of price maintenance, especially in regard to the proposals of the Proprietary Article Trades Association, were given by Mr. D. O. Williams, M.A., lecturer in economics at the Victoria College University, in the course of an address at the annual meeting of the "Wellington branch of the Australian and New Zealand Economic Society last night. He suggested that between the stages of free competition on the one hand and of fully effective combination on the other there was an optimum phase during which, within the limits of our imperfect economic structure, the best interests of society were served. Both competition and combination had their dangers and wastes; both had their individual and social advantages. Economic progress was due partly to competition and partly to combination. They were complementary forces, not antagonistic. Thus the elimination, by combination, of competition in one direction might be, and had often been, the initial step to an intensification of competition in another direction. For instance, the suppression of price might result in greater competition in the sphere of quality and service. Where price agreements to eliminate competition resulted in the competitive improvement of quality or service, or both, they might bring to the consumer a net gain. This was the result, the speaker said, in the privately competing English railways, when after agreement among themselves to fix . rates, and later when the railway commissioners had fixed the rates for them, competition had been diverted from price to facilities. Both the quality and facilities of the railways had been greatly improved, although later the services became wastefully elaborated, and that led to further mutual understandings, "Price competition in certain cases may be dangerous in preventing or retarding necessary improvements in quality or service," said Mr. Williams. "The competitive cutting of prices may, during the period of competition, lead to dangerous depreciation, understaffing, etc. It is true that in transport services the danger of the power of effective combination to levy tribute on the public is very great. But it is not less true that at an early stage, before competition has merged into monopoly, or has given rise to agreements, the danger of competition in impairing the quality and safety of the service is also very great. Thus' at this stage a measure of price maintenance, provided it is accompanied by qualitycompetition, is not necessarily a social loss, but may be a gain. CASE OF BANKING. ." I would cite banking, etc., as a case where effective price control, involving the power of prico maintenance, is no necessary evil. We are all only too familiar with the fact that over-cheap money may be as economically undesirable as over-dear money. It is true that in certain circumstances the power of banks to co-operate to tax the community is great; but it is not less true that the absenco of co-operation between banks may very rapidly land the community in 'Queer street.' Some agreement and regulation as to price maintenance is essential. The days of automatic currency and credit adiustj ment are gone—if ever they existed. I "A measure of price maintenance. j then, is socially desirable where there i is a pre-requisite for necessary improvements in quality. Where price com I petition menaces necessary efficiency, i price maintenance, in . the absenco of ! effective public control, has its function. Where price maintenance in its turn menaces the social interest, public regulation has its function." A somewhat analogous case was presented in trade union organisations. Unorganised individual competition in the price of labour meant a depression of the standard of life with all its unhappy attendant evils. The trades union was justified historically. Whatever might be one's opinion of particular cases of trade union activity, one could not deny that the movement as a whole was both necessary and benoficial. Here was a case where price maintenance was eminently desirable and desperately needed. Tho main purpose of the trade union was to translate into actual fact tho economist's doctrine of high wages which held that somewhere between tho lower extreme of subsistanco wages and the upper monopoly wages there was a price of labour which so promoted its efficiency that the costs of production were lowered. From tho point of view everything depended on whether the added productivity offset tho added wages bill, but this familiar notion could be applied no less to other cases. For here, too, everything depended on whether the price increases were com pensated by quality increases. In many cases the elimination of price competition gave no guarantee of better quality. The competition in quality might simply be a competition in the arts of adulteration. The field of deception seemed to be widening. Patent medicines, cosmetics, and the luxuries of life, so-called, were notoriously subjected to this practice, but there were authentic cases in-other fields. Of course, also, there was a large range of commodities that woro standardised, but in the other cases the possibilities of deception were unlimited. Distinct from quality was the question of service, and price maintenance was practised, in varying ways and with differing degrees of elasticity, in the professional services. These forms of price maintenance had been,gradually evolved into very effective practice, and had been given the binding force of professional ethics. This had added to the attractiveness of these professions and, in the case, of the medical and legal professions, numerous entrants could give no guarantee of quality or ability. Price maintenance was, he judged, neither socially necessary to secure requisite service nor socially compensated by improvements in quality. Further, there were cases where the services of a profession became wastefully elaborated beyond the social optimum.