Market competition for the win then

More people producing things leads to lower prices for consumers - all else being equal of course.

Morrisons has begun matching its prices to Aldi and Lidl as new chief executive Rami Baitiéh mounts a fightback against the German discounters.

The supermarket has pledged to match the price offered by Aldi or Lidl on more than 200 products, offering customers whichever price is lowest. The offer will cover everything from corn flakes and mince to canned tomatoes and baby wipes. Prices will be updated twice a week.

One of the advantages of advancing age is that we’ve seen things happen before. Back a quarter century the big worry about British supermarkets was the uncompetitive nature of the industry. Net margins were up at 6% and the like of turnover - vastly high by international standards. Reports were written identifying triangular areas that one or t’other of the chains dominated and so on. Not much happened.

Then Aldi and Lidl arrived. A different method of retailing, a smaller number of stock lines, different positioning, lower prices. At which point that competition started to eat the market - net margins for the industry are now in the 2 to 3% range. For everyone has had to do, these recent decades, what Morrisons is now doing. Cut prices to consumers to combat said competition.

Those German and Austrian billionaire families which own those two insurgent chains have not done this for our interest. They’ve done it to amass those billionaire fortunes. But the effect has been to lower food prices for all of us. The capitalists competing for our custom is what produces that benefit to us.

Sure, there are alternative ways of attempting to gain this result of an increase in consumer living standards. Venezuela famously decided that the President knew what things should cost and therefore everything should cost what the President said. The result was not an increase in living standards, rather the vanishing of everything from the marketplace.

The standard example in the economic literature of this effect is indeed about the butcher and the baker, it’s not their benevolence that feeds us, it’s their regard for their own self-interest. The particular issue here being that free part of free markets. Which means that people are free to enter the market if they wish - which they have done and to our collective benefit.

Free market competition for the win then.

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