Fixing supermarkets with Gosplan

Somebody at Radio New Zealand really really hates the supermarkets, has absolutely no clue about economics, or both. 

Last year, they'd put up a pretty daft news story quoting some Otago marketing lecturer on how supermarkets should be regulated as public utilities. It's dumb off the start; there's no natural monopoly component here, nothing suggesting subadditivity in costs. He wanted rate of return regulation. 

Whoever wrote the piece for RNZ didn't sign it. 

This week, they decided to syndicate a column from The Conversation, from the same marketing lecturer, again pitching that the supermarkets be regulated as public utilities.

As public utilities, individual supermarket sites should only be allowed to charge a single fixed and publicly stated margin on the goods they sell. This is a novel requirement, but it is core to the process of regulating a supermarket as a utility.

...

Producers and suppliers should not be overlooked in this new regulatory regime. The concentration of wholesalers allows large businesses to dominate non-retail food sectors such as restaurants.

The primary outcome of this - a lack of difference between supermarket retail and wholesale prices for food products - is noted in the Commerce Commission's materials.

Wholesalers should not be allowed to discount products for individual buyers. At the same time, wholesalers should not be allowed to decline service to any buyers at that price unless they can demonstrate that the goods in question are not available and cannot be procured.

Where to start.

A big part of the fight at ComCom was around calculating rates of return. How capital costs get treated matters. How land costs under the supermarkets are counted matters. There are piles of complex lease agreements around those that need to be worked through, and would themselves be endogenous to whatever stupid rule you set to regulate rates of return. 

It isn't straightforward. 

And then this guy wants to run it product-by-product as some kind of mark-up regulation with a fixed mark-up on each good? How's that going to work? Different goods have different turrnover. A foot of shelf-space that turns over three times a day pays for itself differently than a foot of shelf-space that turns over once every three days. 

The policing of this kind of thing would be impossible. If you force a single markup on all products based on the price at which the retailer bought it, you force slow-moving goods off the shelves. If you allow some measure of the cost of shelf-space to enter in, you're going to be chasing your tail forever in policing it. It's just so impossibly stupid.

But Radio New Zealand loves that kind of thing. The editor who picked this one longs for Gosplan. 

Wellington water is a regulated utility. Who'd look at that and say, "Wow. If only the supermarkets were every bit as good."