Self-control and the FTCThe Fair Trade Commission seems to be determined to push forward its price regulation policy, which violates market principles. The commission recently announced legislation that revises the fair trade law.
According to the planned revisions, the commission will forcibly lower prices if a company that dominates the market sets the prices for its goods or services much higher than the cost of producing them or much higher than the prices of other companies.
That means the commission will dictate appropriate market prices for all goods and services and it will forcibly lower prices if companies go past them. This is unthinkable except in a centrally controlled socialist economy.
The Fair Trade Commission says it will apply this rule only when a company abuses its market dominance. However, there are few ways for the commission to judge whether companies set certain prices because they dominate the market.
The commission says it will control prices when prices are much higher than production costs, which is a vague and arbitrary standard.
If the commission judges that a 10-percent profit is appropriate, does it mean that 9-percent profit is reasonable but 11 percent is not?
A market price is a price set in the market according to supply and demand. A reasonable price is set by the market, not by the Fair Trade Commission.
Production costs should be taken into consideration in setting a price, but demand is also a very important factor.
Production costs also include costs for management streamlining or research and development.
Unfortunately these costs are not easily calculated. As our market has developed, domestic companies cannot use their controlling power as much as they used to.
The Fair Trade Commission says it will not regulate cases in which companies increase profits because they produce new items through new technologies or management innovations or if they reduce production costs.
That means the commission will look into whether companies had new technologies or succeeded in management innovation in every case it investigates.
The Fair Trade Commission is not omniscient and omnipotent. It can not reign over the market and companies all the time.
The Fair Trade Commission should suppress its desire to use the enormous power it wields to control the market.