Imagine a boiling hot day when you and your family are playing in the park or on the beach, and the exertion makes you all very thirsty. The children are becoming distressed, but there’s no water to be had. Then along comes someone with a cart full of bottled water on ice. You rush over to buy some only to be told it’s £10 for each small bottle. The vendor knows he has a captive market, because there’s high demand and no alternative.
Would you pay? And how would you perceive his particular brand of marketing initiative? Would you compliment him on his entrepreneurship, or would you feel exploited?
The Office of Fair Trading was set up to deal with, among other things, the abuse of a dominant position. In fact, this is what its website states:
The Competition Act aims to promote healthy competition. It prohibits anti-competitive agreements between firms such as agreements to fix high prices or to carve up markets, and it makes it illegal for companies to abuse a dominant market position.
The Competition Act also prohibits abuse of a dominant market position. For example businesses must not impose unfair prices on customers or suppliers (my italics).
That would seem to cover the example I gave. So the unfairly high price for water in that monopoly situation could be deemed illegal, and you might expect the OFT to take action to stop it. But it won’t. And it doesn’t.
Consider the high prices charged in motorway service stations, airports and on board ferries for water, tea, coffee, and food. All are in dominant market positions – in fact all enjoy either monopolies (service stations) or an apparent agreement to charge high prices in all catering outlets (airports). All seem to be abusing those advantages, especially as they often provide indifferent fare, not something exotic or of distinctive high quality.
It could be that they have to charge high prices because they are paying very high rents. If so, the airport authorities and the motorway site owners are abusing their dominant positions. Those cafes and restaurants have far more customers than comparable establishments on the High Street, and the fixed costs in a London High Street (for example) are not low.
So what’s the explanation for these unfair prices? And why is the OFT taking no action? After all, there must have been many complaints.
There are some who will argue that airports and motorway service stations are convenience stores. They provide food and drink where there is a high level of demand and no alternative. But isn’t that exactly the same scenario as the water seller charging £10 a bottle on a hot day?
Is it simply demand and supply in a free market, or is it unfair pricing and the abuse of a dominant position in the market place?