Shopping Rules

Is Europe ready to deregulate its retail trade and, for example, allow retailers to decide when to offer sales? Lombardy, in northern Italy is moving in that direction, but much of continental Europe is lagging behind–and losing money.

Comments

[Jason Ligon]

I … don’t … understand. Sales … bad for consumer?

You know, back in the day, I used to play pen and paper Call of Cthulu. If you ever found a musty tome somewhere and tried to read it, you had to make a Sanity Check to see if you could successfully rationalize the madness in the pages. If you failed, you would lose Sanity Points, indicating that your grip on normal reality was slipping. The longer I live, the more convinced I am that life really works like that. I can feel it in my brain when I fail a sanity check.

Savings is theft. Sales harm consumers. I think I’ll go put on my happy-jacket now …

[JonBuck]

This is something I didn’t know about Europe. It’s patently insane to have this kind of regulation.

[AJS]

I must be missing something here. The government regulates how and when retailers *lower* their prices? I can’t see how there can be any rational argument in favour of this, it seems crazy to me. I know we like to make fun of European bureaucracy, but this is taking the piss…

[Stevo Darkly]

See, if a business outcompetes its competitors, it might put them out of business, allowing the most competitive business to become a monopoly, which means no more competition. Therefore, unrestricted competition is anti-competitive.

(Anyway, that was the reasoning used by the government regulators in Atlas Shrugged, chunks of which I re-skimmed recently. I also heard similar real-life arguments about Microsoft. The antidote is to remember that “winning” a competition for consumers’ business is rarely so permanent or absolute.)

[R C Dean]

“I can’t see how there can be any rational argument in favour of this”

Obviously, you don’t own a retail business that reaps the profits of being free from price competition.

[Evan Williams]

“Obviously, you don’t own a retail business that reaps the profits of being free from price competition.”

AKA Rent-seeking. Note the difference between profit-seeking and rent-seeking. Profit-seeking aims to benefit within a given economic environment. Rent-seeking aims to disrupt the economic environment as a whole (usually via government force) in favor of a particular party. Benefitting from government prohibitions on price competition is in the vein of rent-seeking. Those businesses too lazy or sorry to compete for the customers’ money gain from this legislation, while those businesses who would implement innovative business models (like offering sales) to create profit fairly, lose from this legislation.

Meanwhile, the former category of businesses (sorry, lazy) would lose in the absence of this prohibition, while the latter (innovative) would gain.

The third party, the consumer, also gains from the absence of the prohibition. In addition, the free-market system rewards innovation and punishes laziness and bad business.

So, the only “logical” argument in favor of this silly law is that you would actually want to reward laziness & inefficiency, while at the same time punishing consumers. Good ol’ Eurotrash.

[Gary Gunnels]

As I recall (and I haven’t read the IHT article) France’s Sarkozy wants to get rid of much of this regulation if/when he is elected President. Carrefour is bitching like mad about the situation and that likely means some changes for the better.

[kevrob]

The Euros may be idiots, but our several states do have instances of price maintainance of various kinds. For example, here in Wisconsin we have laws that require a “minimum markup” from the wholesale price, notably on motor fuel. This is supposed to protect Mom & Pop filling stations from “unfair competition” from bigger operations who can survive on a narrower margin. They especially fear retailers such as Wal*Mart installing a gas pump and selling to their customers as a traffic builder. I’m sure each state has some horrible peculiarity we could all kvetch about.

Minimum markup had a cousin called “fair trade laws” that have mostly disappeared.

Kevin

[Gary Gunnels]

Kevin,

To me is the store hours issue that is even worse.

[Xavier]

You could argue that sales are a form of price discrimination. When you have a sale, you draw in the customers that are most price sensitive. That allows stores to charge a higher price the rest of the time. Forcing a consistent price may encourage stores to have consistently lower prices, which would have the effect of increasing consumer surplus.

I’m not really persuaded by that argument, but it’s something. It’s not completely unreasonable to think that banning sales would be good for consumers.

[kevrob]

I can’t see banning sales as anything but a detriment to consumers. Merchants who can’t temporarily mark down their stock will have a problem managing their inventory. Fear of being stuck with product you can’t shift at full price leads to tentative buying. That can mean missing out on lower wholesale prices from the manufacturer or jobber, so your margin is tighter to start with, and to a narrower selection of goods. Distress selling to discounters doesn’t recover sunk costs as completely as selling an item at a sale price – still above wholesale – to an ordinary customer. You miss out on the good will engendered during “Field Days” or whatever the outfit calls a good blowout. Sales are a good way of enticing new customers, who, when they are earning more money a few years down the road, may remember their good experience and become regular customers.

Kevin

[drf]

yes, but GG, france has laws prohibiting certain pricing arrangements that is unique to europe. the keckcase highlighted that france wasn’t in violation of the common market or in TEC 28. the rule was considered to be justified and proportional.